##### 



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549

FORM 10-K

x   
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 28, 2002

o   
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from
____________ to ____________.

Commission File Number 0-14706

INGLES MARKETS, INCORPORATED




(Exact name of registrant as specified in its charter)


|                                                                              |  |                                                
|----------------------------------------------------------------------------- |  | -----------------------------------------------
|North Carolina
(State or other jurisdiction of incorporation or organization) |  | 56-0846267
(I.R.S. Employer Identification No.)
|                                                                             
|P.O. Box 6676, Asheville, NC
(Address of principal executive offices)         |  | 28816
(Zip Code)                               
|                                                                             
|Registrants telephone number including area code:                            |  | (828) 669-2941                                 

Securities registered pursuant to Section 12(b) of the Act:

|                    |  |                                          
|------------------- |  | -----------------------------------------
|Title of each class |  | Name of each exchange on
which registered
|                    |  |                                          
|None                |  | None                                     
|                    |  |                                          

Securities registered pursuant to Section 12(g) of the Act:
Class A Common Stock, $0.05 par value
Class B Common Stock, $0.05 par value




(Title of Class)


Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.   
YES   x   
NO   o.

Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrants knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K.  x

As of November 21, 2002, the aggregate market value of voting stock
held by non-affiliates of the registrant, based on the closing sales price
of the Class A Common Stock on the Nasdaq Stock Markets National Market on
November 21, 2002, was approximately $115.7 million. As of November 21,
2002, the registrant has 10,190,857 shares of Class A Common Stock
outstanding and 12,596,882 shares of Class B Common Stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement to be used in connection with the
solicitation of proxies to be voted at the registrants annual meeting of
stockholders to be held on February 11, 2003, to be filed with the
Commission, are incorporated by reference into Part III of this Report on
Form 10-K.

1



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PART I

Item 1. BUSINESS

General

Ingles Markets, Incorporated (Ingles or the Company), a leading
supermarket chain in the Southeast, operates 198 supermarkets in Georgia
(83), North Carolina (60), South Carolina (31), Tennessee (21), Virginia
(2) and Alabama (1). The Companys strategy is to locate its supermarkets
primarily in suburban areas, small towns and rural communities. Ingles
supermarkets offer customers a wide variety of nationally advertised food
products, including grocery, meat and dairy products, produce, frozen foods
and other perishables and non-food products, including health and beauty
care products and general merchandise, as well as quality private label
items. In addition, the Company focuses on selling high-growth,
high-margin products to its customers through the development of book
sections, media centers, floral departments, bakery departments and
prepared foods, including delicatessen sections. Real estate ownership is
an important component of the Companys operations, providing both
operational and economic benefits.

The Company believes that customer service and convenience, modern stores
and competitive prices on a broad selection of quality merchandise are
essential to developing a loyal customer base. The Companys new and
remodeled supermarkets provide an enhanced level of customer convenience in
order to accommodate the active lifestyle of todays shoppers. Design
features of the Companys modern stores include expanded perishable
departments featuring home meal replacement items and an expanded selection
of food and non-food items to provide a one-stop shopping experience.
The Company has an ongoing renovation and expansion plan to add stores in
its target markets and to modernize the appearance and layout of its
existing stores. Over the past five fiscal years, the Company has spent
approximately $433 million to modernize and remodel its existing stores,
relocate older stores to larger, more convenient locations and construct
new stores in order to maintain the quality shopping experience that its
customers expect. As part of the Companys renovation and expansion plan,
the Company has begun to operate full-service pharmacies and gas stations
at some of its stores.

Substantially all of the Companys stores are located within 250 miles of
its 780,000 square foot warehouse and distribution center, near Asheville,
North Carolina, from which the Company distributes grocery, produce, meat
and dairy products to all Ingles stores. The warehouse supplies the stores
with approximately 64% of the goods the Company sells and the remaining 36%
is purchased from third parties. The close proximity of the Companys
purchasing and distribution operations to its stores facilitates the timely
distribution of consistently high quality meat, produce and other
perishable items.

To further ensure product quality, the Company also owns and operates a
milk processing and packaging plant that supplies approximately 80% of the
milk products sold by the Companys supermarkets as well as a variety of
orange and other fruit juices and bottled water products. In addition, the
milk processing and packaging plant sells approximately 68% of its products
to other retailers, food service distributors and grocery warehouses in
seventeen states, which provides the Company with an additional source of
revenue.

Ingles believes that real estate ownership allows it to decrease its
occupancy costs, maintain flexibility for future store expansion, control
the development and management of each property and benefit from value
created by developing and operating free-standing supermarkets and shopping
centers in smaller markets. The Company owns and operates 76 shopping
centers, 59 of which contain an Ingles supermarket, and owns 73 additional
properties that contain a free-standing Ingles store. The Company also
owns five undeveloped sites suitable for a free-standing store. The
majority of the land tracts that Ingles owns contain additional acreage
which may either be sold or developed in the future.

The Company was founded by Robert P. Ingle, the Companys Chairman of the
Board and Chief Executive Officer. As of September 28, 2002, Mr. Ingle
owns or controls approximately 86% of the combined voting power and 52% of
the total number of shares of the Companys outstanding Class A and Class B
Common Stock (in each case including stock deemed to be beneficially owned
by Mr. Ingle as one of the trustees of the Companys Investment/Profit
Sharing Plan and Trust). The Company became a publicly traded company in
September 1987. Its Class A Common Stock is traded on The Nasdaq Stock
Markets National Market under the symbol IMKTA.

The Company was incorporated in 1965 under the laws of the State of North
Carolina. Its principal executive offices are located at P. O. Box 6676,
Highway 70, Asheville, North Carolina 28816, and its telephone number is
828-669-2941.

2



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##### 



Business

The Company operates three lines of business: retail grocery sales,
shopping center rentals and a fluid dairy processing plant. Information
about the Companys operations by lines of business (in millions) is as
follows (for information regarding the Companys industry segments, see
Note 11 to the Consolidated Financial Statements of this report on Form
10-K):

|                                                  |  |      |                                 |      |  |      |       |   |  |   |         |  |  |  |       |   |  |   |         |  |  |  |       |  
|------------------------------------------------- |  | ---- | ------------------------------- | ---- |  | ---- | ----- | - |  | - | ------- |  |  |  | ----- | - |  | - | ------- |  |  |  | ----- | -
|                                                  |  |      | Fiscal Year Ended September (1)
|                                                  |  |     
|                                                  |  | 2002 |                                 | 2001 |  | 2000
|                                                  |  |      |                                 |      |  |     
|Revenues from
unaffiliated customers:             |  |      |                                 |      |  |      |       |   |  |   |         |  |  |  |       |   |  |   |         |  |  |  |       |  
|Grocery sales                                     |  | $    | 1,867.9                         |      |  |      | 94.4  | % |  | $ | 1,866.1 |  |  |  | 94.7  | % |  | $ | 1,842.1 |  |  |  | 95.3  | %
|Shopping center rentals                           |  |      | 16.9                            |      |  |      | .9    | % |  |   | 16.6    |  |  |  | .8    | % |  |   | 15.9    |  |  |  | .8    | %
|Fluid dairy                                       |  |      | 92.6                            |      |  |      | 4.7   | % |  |   | 87.3    |  |  |  | 4.5   | % |  |   | 74.1    |  |  |  | 3.9   | %
|                                                  |  |      |                                 |      |  |      |       |   |  |   |         |  |  |  |       |   |  |   |         |  |  |  |       |  
|                                                  |  | $    | 1,977.4                         |      |  |      | 100.0 | % |  | $ | 1,970.0 |  |  |  | 100.0 | % |  | $ | 1,932.1 |  |  |  | 100.0 | %
|                                                  |  |      |                                 |      |  |      |       |   |  |   |         |  |  |  |       |   |  |   |         |  |  |  |       |  
|Income from operations:                           |  |      |                                 |      |  |      |       |   |  |   |         |  |  |  |       |   |  |   |         |  |  |  |       |  
|Grocery sales                                     |  | $    | 48.6                            |      |  |      | 68.9  | % |  | $ | 48.3    |  |  |  | 71.9  | % |  | $ | 51.1    |  |  |  | 74.7  | %
|Shopping center rentals                           |  |      | 10.3                            |      |  |      | 14.6  | % |  |   | 10.3    |  |  |  | 15.3  | % |  |   | 10.1    |  |  |  | 14.8  | %
|Fluid dairy                                       |  |      | 11.6                            |      |  |      | 16.5  | % |  |   | 8.6     |  |  |  | 12.8  | % |  |   | 7.2     |  |  |  | 10.5  | %
|                                                  |  |      |                                 |      |  |      |       |   |  |   |         |  |  |  |       |   |  |   |         |  |  |  |       |  
|                                                  |  |      | 70.5                            |      |  |      | 100.0 | % |  |   | 67.2    |  |  |  | 100.0 | % |  |   | 68.4    |  |  |  | 100.0 | %
|                                                  |  |      |                                 |      |  |      |       |   |  |   |         |  |  |  |       |   |  |   |         |  |  |  |       |  
|Other income, net                                 |  |      | 5.1                             |      |  |      |       |   |  |   | 3.9     |  |  |  |       |   |  |   | 7.0     |  |  |  |       |  
|Interest expense                                  |  |      | 51.6                            |      |  |      |       |   |  |   | 42.9    |  |  |  |       |   |  |   | 41.2    |  |  |  |       |  
|                                                  |  |      |                                 |      |  |      |       |   |  |   |         |  |  |  |       |   |  |   |         |  |  |  |       |  
|Income before income taxes
and extraordinary item |  | $    | 24.0                            |      |  |      |       |   |  | $ | 28.2    |  |  |  |       |   |  | $ | 34.2    |  |  |  |       |  
|                                                  |  |      |                                 |      |  |      |       |   |  |   |         |  |  |  |       |   |  |   |         |  |  |  |       |  



|(1) |  | Fiscal 2002 and 2001 were 52-week years and fiscal 2000 was a 53-week
year.
|--- |  | ---------------------------------------------------------------------------

Supermarket Operations

The Company follows the strategy of locating its supermarkets primarily in
suburban areas, small towns and rural communities. At September 28, 2002,
the Company operated 195 supermarkets under the name Ingles, two
supermarkets under the name Best Food and one supermarket under the name
Sav-Mor with locations in western North Carolina, western South Carolina,
northern Georgia, eastern Tennessee, southwestern Virginia and northeastern
Alabama. The Best Food and Sav-Mor store concepts accommodate smaller
shopping areas and carry a full line of dry groceries, fresh meat and
produce, all of which are displayed in a modern, readily accessible
environment. The stores are also operated in accordance with Ingles high
standards of customer service and quality products at a low price.

The following table sets forth certain information with respect to the
Companys supermarket operations.

|               |  |                        |     |                      |  |           |     |      |  |      |     |                      |  |  |     |   |  |  |     |   |  |  |     |  
|-------------- |  | ---------------------- | --- | -------------------- |  | --------- | --- | ---- |  | ---- | --- | -------------------- |  |  | --- | - |  |  | --- | - |  |  | --- | -
|               |  | Number of Supermarkets |     | Percentage of Total 
|               |  |                        |     |                      |  | at Fiscal |     |      |  |      |     | Net Sales for Fiscal
|               |  | Year Ended September   |     | Year Ended September
|               |  |                        |     |                     
|               |  | 2002                   |     | 2001                 |  | 2000      |     | 2002 |  | 2001 |     | 2000                
|               |  |                        |     |                      |  |           |     |      |  |      |     |                     
|North Carolina |  |                        | 60  |                      |  |           | 61  |      |  |      | 63  |                      |  |  | 35  | % |  |  | 34  | % |  |  | 33  | %
|South Carolina |  |                        | 31  |                      |  |           | 31  |      |  |      | 32  |                      |  |  | 15  | % |  |  | 14  | % |  |  | 13  | %
|Georgia        |  |                        | 83  |                      |  |           | 83  |      |  |      | 84  |                      |  |  | 39  | % |  |  | 41  | % |  |  | 42  | %
|Tennessee      |  |                        | 21  |                      |  |           | 24  |      |  |      | 25  |                      |  |  | 10  | % |  |  | 10  | % |  |  | 10  | %
|Virginia       |  |                        | 2   |                      |  |           | 3   |      |  |      | 3   |                      |  |  | 1   | % |  |  | 1   | % |  |  | 1   | %
|Alabama        |  |                        | 1   |                      |  |           | 1   |      |  |      | 1   |                      |  |  |    |   |  |  |    |   |  |  | 1   | %
|               |  |                        |     |                      |  |           |     |      |  |      |     |                      |  |  |     |   |  |  |     |   |  |  |     |  
|               |  |                        | 198 |                      |  |           | 203 |      |  |      | 208 |                      |  |  | 100 | % |  |  | 100 | % |  |  | 100 | %
|               |  |                        |     |                      |  |           |     |      |  |      |     |                      |  |  |     |   |  |  |     |   |  |  |     |  

The Company believes that todays supermarket customers are focused on
convenience and value. As a result, the Companys one-stop shopping
experience combines a high level of customer service, convenience-oriented
product offerings and low overall pricing. The Companys modern stores
provide products and services such as home meal replacement items,
delicatessens, bakeries, floral departments, video rental departments,
greeting cards and broad selections of health and beauty care items. During
fiscal 2000, Ingles opened its first company-owned, in-store pharmacy and
its first fuel station, Ingles Gas Express. At September 28, 2002, the
Company operated 15 pharmacies and 11 fuel stations. The Company plans to
continue to incorporate these new departments in select stores during fiscal
2003. The Company caters to the needs of its customers by offering extended
hours and 24-hour

3



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service in appropriate markets. The Company trains its employees to provide
friendly service and to actively address the needs of customers. These
employees reinforce the Companys distinctive service oriented image.

Selected statistics on the Companys supermarket operations are presented
below:

|                                                  |  |                             |        |      |  |         |        |      |  |      |        |  |  |   |        |  |  |   |        | 
|------------------------------------------------- |  | --------------------------- | ------ | ---- |  | ------- | ------ | ---- |  | ---- | ------ |  |  | - | ------ |  |  | - | ------ | 
|                                                  |  | Fiscal Year Ended September
|                                                  |  |                            
|                                                  |  | 2002                        |        | 2001 |  | 2000(1) |        | 1999 |  | 1998
|                                                  |  |                             |        |      |  |         |        |      |  |     
|Weighted Average Sales
Per Store (000s)          |  | $                           | 9,266  |      |  | $       | 9,004  |      |  | $    | 8,856  |  |  | $ | 8,424  |  |  | $ | 7,840  | 
|Total Square Feet at
End of Year (000s)          |  |                             | 9,000  |      |  |         | 9,081  |      |  |      | 8,914  |  |  |   | 8,400  |  |  |   | 8,287  | 
|Average Total Square
Feet per Store               |  |                             | 45,454 |      |  |         | 44,736 |      |  |      | 42,855 |  |  |   | 40,776 |  |  |   | 40,038 | 
|Average Square Feet of
Selling Space per Store(2) |  |                             | 31,817 |      |  |         | 31,315 |      |  |      | 29,999 |  |  |   | 28,543 |  |  |   | 28,026 | 



|(1) |  | Fiscal 2000 was a 53-week year.                                    
|--- |  | -------------------------------------------------------------------
|   
|(2) |  | Selling space is estimated to be 70% of total store square footage.

Merchandising

The Companys merchandising strategy is designed to create a one-stop
shopping experience that blends value and customer service with variety,
quality and convenience. Management believes that this strategy fosters a
loyal customer base by establishing a reputation for providing high quality
products and a variety of specialty departments.

The Companys stores carry broad selections of quality meats, produce and
other perishables. The Companys full-service meat departments are
generally designed so that customers can see Ingles employees at work and
so that its butchers are readily accessible to its customers. Many of the
Companys stores offer a wide selection of fresh fish and seafood. The
Company emphasizes the freshness and quality of its produce, bakery and deli
offerings by designing its departments with an open air market atmosphere.

Management believes that supermarkets offering a broad array of products and
time-saving services are perceived by customers as part of a solution to
todays lifestyle demands. Accordingly, a principal component of the
Companys merchandising strategy is to design stores that offer a one-stop
shopping experience. In the Companys prototype stores, in-store bakeries
and delicatessens, prepared foods sections, gourmet coffee service and
fresh-squeezed fruit juices are conveniently located near seating areas. In
addition, book stores with reading areas and in-store pharmacies add to the
one-stop shopping experience. Most Ingles stores also offer a wide
selection of domestic, premium, micro brewery and imported beers and
domestic and imported wines. The floral department offers balloons, flowers
and plants. The media department features new movie releases, popularly
priced computer software, rental VCRs and snack items all contained in an
appealing display area decorated with a movie marquee and a monitor playing
current videos. Customers can also purchase money orders and send or receive
money wires from the customer service department or receive cash back at the
check-out counter with a debit card.

A selection of prepared foods and home meal replacements are featured
throughout Ingles specialty departments and in the meat department to
provide customers with easy meal alternatives that they can eat at home, at
work or in a sit-down café that is conveniently located near the front of
newer Ingles stores. Many stores offer daily selections of home meal
replacement items, such as rotisserie chicken, pizza, lasagna, meat loaf and
other dinner entrees, sandwiches, pre-packaged salads and prepared fresh
vegetables. The bakery offers an expanded selection of baked goods and
self-service selections. Ingles offers bread baked daily, cakes made to
order in various sizes, donuts and other pastries. The deli offers a salad
bar, an expanded offering of cheeses and gourmet items and home meal
replacement items. Ingles has introduced, at many of its locations, a fruit
bar that offers fresh squeezed juices and assorted sliced fruits. The
Company also provides its customers with an expanded selection of frozen
food items to meet the increasing demands of its customers. The new
prototype Ingles supermarket contains a power aisle that includes
specialty departments, such as a bakery, a delicatessen, a produce
department, a gourmet coffee service and a separate check-out.

Ingles intends to continue to increase sales of its proprietary brands,
which typically carry higher margins than comparable branded products. The
Company currently carries two private label lines: Laura Lynn, its primary
line named after the founders daughter, and Ingles Best. Ingles private
labels cover a broad range of products throughout the store, such as milk,
bread, soft drinks and canned goods. The Company promotes its private label
brands through print and television advertising, by displaying comparison
pricing with national brands on store shelf

4



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tags and by reflecting savings on customers cash register receipts. In
addition to increasing margins, Ingles believes that private label sales
help promote customer loyalty.

The Company seeks to maintain a reputation for providing friendly service,
quality merchandise and customer value and for its commitment to community
involvement. The Company employs various advertising and promotional
strategies to reinforce the quality and value of its products. The Company
promotes these attributes using all of the traditional advertising vehicles
including radio, television, direct mail and newspapers. The Company uses
numerous visible and subtle means to communicate its commitment to community
involvement. The Company sponsors numerous high profile events such as the
Ingles Food Show and the Baby Expo, as well as local and nationally
recognized sporting events. The Company raises funds for charity, provides
equipment for education and works closely with civic and government leaders
on projects of local importance.

Purchasing and Distribution

The Company supplies approximately 64% of its supermarkets inventory
requirements from its modern 780,000 square foot warehouse and distribution
center from which the Company distributes groceries, produce, meat and dairy
products to all Ingles stores. The Company believes that its warehouse and
distribution facility contains sufficient capacity for the continued
expansion of its store base for the foreseeable future.

The Companys centrally managed purchasing and distribution operations
provide several advantages, including the ability to negotiate and reduce
the cost of merchandise, decrease overhead costs and better manage its
inventory at both the warehouse and store level. From time to time, the
Company engages in advance purchasing on high-turnover inventory items to
take advantage of special prices offered by manufacturers for limited
periods. The Companys ability to take advantage of advance purchasing is
limited by several factors including carrying costs and warehouse space.

Approximately 14% of the Companys other inventory requirements, primarily
frozen food and slower moving items that the Company prefers not to stock,
are purchased from Merchant Distributors, Inc. (MDI), a wholesale grocery
distributor with which the Company has had a continuing relationship since
its inception. Purchases from MDI were approximately $197 million in 2002,
$203 million in 2001 and $188 million in 2000. Additionally, MDI purchases
product from Milkco, the Companys fluid dairy subsidiary, and these
purchases totaled approximately $35 million in fiscal 2002, $32 million in
2001 and $30 million in fiscal 2000. MDI owned approximately 3% of the
Companys Class A Common Stock and approximately 1% of the Companys Class B
Common Stock at September 28, 2002 totaling 1.3% of the total voting power.
The Company believes that alternative sources of supply are readily
available from other third parties.

The remaining 22% of the Companys inventory requirements, primarily
beverages, bread and snack foods, are supplied directly to Ingles
supermarkets by local distributors and manufacturers.

Goods from the warehouse and distribution facility and the milk processing
and packaging plant are distributed to the Companys stores by a fleet of
111 tractors and 393 trailers that the Company operates and maintains,
including tractors and trailers that the Company leases. The Company
invests on an ongoing basis in the maintenance, upgrade and replacement of
its tractor and trailer fleet. The Company also operates truck servicing
and fuel storage facilities at its warehouse and distribution center. The
Company reduces its overall distribution costs by capitalizing on back-haul
opportunities (contracting to transport merchandise on trucks that would
otherwise be empty).

Store Development, Expansion and Remodeling

The Company believes that the appearance and design of its stores are
integral components of its customers shopping experience and aims to
develop one of the most modern supermarket chains in the industry. The
ongoing modernization of the Companys store base involves (i) the
construction of new prototype stores, (ii) the replacement or complete
remodeling and expansion of existing stores and (iii) minor remodels of
existing stores. The Companys goal is to maintain clean, well-lit stores
with attractive architectural features that enhance the image of its stores
as catering to the changing lifestyle needs of quality-conscious consumers.

The Company is focused primarily on developing owned stores rather than
leased stores. Management believes that owning stores rather than leasing
them provides the Company with lower all-in occupancy costs and the
flexibility over the long-term to expand its stores further, if needed. The
construction of new stores is closely monitored and controlled by the
Company. The Company hires independent contractors to construct its
supermarkets from its prototype designs.

5



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The Company renovates and remodels stores in order to increase customer
traffic and sales, respond to existing customer demand, compete effectively
against new stores opened by competitors and support its quality image
merchandising strategy. The Company decides to complete a major remodel of
an existing store based on its evaluation of the competitive landscape of
the local marketplace. A major remodel and expansion provides the quality
of facilities and product offerings identical to that of a new prototype
store, capitalizing upon the existing customer base. The Company retains
the existing customer base by keeping the store in operation during the
entire remodeling process. The Company may elect to relocate, rather than
remodel, certain stores where relocation provides a more convenient location
for its customers and is more economical.

The Company completes minor remodels in existing stores that management
believes provide ample size and facilities to support the local customer
base but require merchandising and operational improvements. In a minor
remodel the Company will also make cosmetic changes to give the store a new
look and feel. Minor remodels generally include repainting, remodeling and
upgrading of the lighting throughout the store. Additionally, the Company
refurbishes existing equipment and adds selected new equipment in the
remodeling process. As part of a minor remodel, the Company remerchandises
the store including the broadening of product and service offerings.

When the Company remodels, expands or relocates an existing store, it uses
that opportunity to retrain the employees of that store and reemphasize
customer service.

The following table sets forth, for the periods indicated, the Companys new
store development and store remodeling activities and the effect this
program has had on the average size of its stores.

|                  |                                 |  |      |        |      |  |      |        |      |  |      |        |  |  |  |        |  |  |  |        | 
|----------------- | ------------------------------- |  | ---- | ------ | ---- |  | ---- | ------ | ---- |  | ---- | ------ |  |  |  | ------ |  |  |  | ------ | 
|                  |                                 |  | 2002 |        | 2001 |  | 2000 |        | 1999 |  | 1998
|                  |                                 |  |      |        |      |  |      |        |      |  |     
|Number of Stores: |                                 |  |      |        |      |  |      |        |      |  |      |        |  |  |  |        |  |  |  |       
|                  | Opened (1)                      |  |      | 0      |      |  |      | 2      |      |  |      | 4      |  |  |  | 3      |  |  |  | 11     | 
|                  | Closed stores (1)               |  |      | 5      |      |  |      | 7      |      |  |      | 2      |  |  |  | 4      |  |  |  | 2      | 
|                  | Major remodels and
replacements |  |      | 3      |      |  |      | 9      |      |  |      | 11     |  |  |  | 3      |  |  |  | 9      | 
|                  | Minor remodels                  |  |      | 10     |      |  |      | 6      |      |  |      | 8      |  |  |  | 16     |  |  |  | 10     | 
|                  | Stores open at end of period    |  |      | 198    |      |  |      | 203    |      |  |      | 208    |  |  |  | 206    |  |  |  | 207    | 
|Size of Stores:   |                                 |  |      |        |      |  |      |        |      |  |      |        |  |  |  |        |  |  |  |       
|                  | Less than 30,000 sq. ft         |  |      | 18     |      |  |      | 21     |      |  |      | 26     |  |  |  | 32     |  |  |  | 35     | 
|                  | 30,000 up to 41,999 sq. ft      |  |      | 58     |      |  |      | 60     |      |  |      | 67     |  |  |  | 71     |  |  |  | 74     | 
|                  | 42,000 up to 51,999 sq. ft      |  |      | 35     |      |  |      | 36     |      |  |      | 39     |  |  |  | 41     |  |  |  | 40     | 
|                  | At least 52,000 sq. ft          |  |      | 87     |      |  |      | 86     |      |  |      | 76     |  |  |  | 62     |  |  |  | 58     | 
|                  | Average store size (sq. ft.)    |  |      | 45,454 |      |  |      | 44,736 |      |  |      | 42,855 |  |  |  | 40,776 |  |  |  | 40,038 | 



|(1) |  | Excludes new stores opened to replace existing stores.
|--- |  | ------------------------------------------------------

The Company has historically expanded its store base by acquiring or leasing
supermarket sites and constructing stores to its specifications. From time
to time, however, the Company may consider the acquisition of existing
supermarkets as such opportunities become available.

The Companys ability to open new stores is subject to many factors,
including the acquisition of satisfactory sites and the successful
negotiation of new leases, and may be limited by zoning and other
governmental regulation. In addition, the Companys expansion, remodeling
and replacement plans are continually reviewed and are subject to change.
See the Liquidity and Capital Resources section included in Item 7.
Managements Discussion and Analysis of Financial Condition and Results of
Operations regarding the Companys capital expenditures.

Competition

The supermarket industry is highly competitive and characterized by narrow
profit margins. The Companys principal competitors (in alphabetical order)
are BI-LO, Inc., Food Lion, Inc., The Kroger Co., Publix Super Markets, Inc.
and Winn-Dixie Stores, Inc. The Company also competes with other national
and regional supermarket chains, independent and specialty grocers, drug and
convenience stores, and the newer alternative format food stores,
including specialty food stores, retail drug stores, national general
merchandisers and discount retailers, membership clubs, warehouse stores and
supercenters (such as those operated by Wal-Mart Stores, Inc.). The Company
also faces increasing competition from restaurants and fast food chains due
to the increasing proportion of household food expenditures for food
prepared outside the home.

6



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Supermarket chains generally compete on the basis of location, quality of
products, service, price, convenience, product variety and store condition.
The Companys management monitors competitive activity and regularly reviews
and periodically adjusts the Companys marketing and business strategies as
management deems appropriate in light of existing conditions in the
Companys region. The Companys ability to remain competitive in its
changing markets will depend in part on its ability to pursue its expansion
and renovation programs in response to remodelings and new store openings by
its competitors.

Employees and Labor Relations

At September 28, 2002, the Company had approximately 14,500 employees, of
which 92% are supermarket personnel. Approximately 54% of these employees
work on a part-time basis. None of the employees are represented by a labor
union. Management considers employee relations to be good. The Company
values its employees and believes that employee loyalty and enthusiasm are
key elements of its operating performance.

Trademarks and Licenses

The Company employs various trademarks and service marks in its business,
the most important of which are its own Laura Lynn private label trademark
and the Ingles service mark. The Ingles service mark, Laura Lynn
trademark and the service mark You get a lot more. You pay a lot less.
are federally registered in the United States pursuant to applicable
intellectual property laws and are the property of Ingles. In addition, the
Company uses the Sealtest, Pet and Light N Lively trademarks pursuant
to agreements entered into in connection with its milk, fruit juice and
spring water processing and packaging operations. The Company believes it
has all licenses and permits necessary to conduct its business.

Environmental Matters

Under applicable environmental laws, the Company may be responsible for
remediation of environmental conditions and may be subject to associated
liabilities relating to its stores and other buildings and the land on which
such stores and other buildings are situated (including responsibility and
liability related to its operation of its gas stations and the storage of
gasoline in underground storage tanks), regardless of whether the Company
leases or owns the stores, other buildings or land in question and
regardless of whether such environmental conditions were created by the
Company or by a prior owner or tenant. The Companys liabilities may also
include costs and judgments resulting from lawsuits brought by private
litigants. The presence of contamination from hazardous or toxic
substances, or the failure to properly remediate such contaminated property,
may adversely affect the Companys ability to sell or rent such real
property or to borrow using such real property as collateral. Although the
Company typically conducts a limited environmental review prior to acquiring
or leasing new stores, other buildings or raw land, there can be no
assurance that environmental conditions relating to prior, existing or
future stores, other buildings or the real properties on which such stores
or other buildings are situated will not have a material adverse effect on
the Companys business, financial condition and results of operations.

Federal, state and local governments could enact laws or regulations
concerning environmental matters that affect the Companys operations or
facilities or increase the cost of producing or distributing the Companys
products. The Company believes that it currently conducts its operations,
and in the past has conducted its operations, in substantial compliance with
applicable environmental laws. The Company, however, cannot predict the
environmental liabilities that may result from legislation or regulations
adopted in the future, the effect of which could be retroactive. Nor can the
Company predict how existing or future laws and regulations will be
administered or interpreted or what environmental conditions may be found to
exist at its facilities or at other properties where the Company or its
predecessors have arranged for the disposal of hazardous substances. The
enactment of more stringent laws or regulations or stricter interpretation
of existing laws and regulations could require expenditures by the Company,
some of which could have a material adverse effect on its business,
financial condition and results of operations.

Government Regulation

The Company is subject to regulation by a variety of governmental agencies,
including, but not limited to, the U.S. Food and Drug Administration, the
U.S. Department of Agriculture, the Occupational Health and Safety
Administration and other federal, state and local agencies. The Companys
stores are also subject to local laws regarding zoning, land use and the
sale of alcoholic beverages. The Company believes that its locations are in
material compliance with such laws and regulations.

7



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Item 2. PROPERTIES

Owned Properties

The Company owns and operates 76 shopping centers, 59 of which contain an
Ingles supermarket, and owns 73 additional properties that contain a
free-standing Ingles store. The Company also owns five undeveloped sites
which are suitable for a free-standing store or shopping center development.
Ingles owns numerous outparcels and other acreage located adjacent to the
shopping centers and supermarkets it owns.

In order to maximize the utility of the Companys real estate portfolio, the
Company regularly purchases and sells real estate. During fiscal 2002, the
Company spent $5.7 million for the purchase of land and received $7.1
million for the sale of properties owned by Ingles.

The shopping centers owned by the Company contain an aggregate of 6.3
million square feet of leasable space, of which 2.8 million square feet is
used by the Companys supermarkets. The remainder of the leasable space in
these shopping centers is leased or held for lease by the Company to third
party tenants. A breakdown by size of the shopping centers operated by the
Company is as follows:

|                              |       |        |    |    | 
|----------------------------- | ----- | ------ | -- | -- | 
|Size                          |       | Number
|                              |       |       
|Less than 50,000 square feet  |       |        | 26 |   
|50,000  100,000 square feet  |       |        | 31 |   
|More than 100,000 square feet |       |        | 19 |   
|                              |       |        |    |   
|                              | Total |        |    | 76 | 
|                              |       |        |    |   

The Company owns an 810,000 square foot facility, which is strategically
located between Interstate 40 and Highway 70 near Asheville, North Carolina,
as well as the 73 acres of land on which it is situated. The facility
includes the Companys headquarters and its 780,000 square foot warehouse
and distribution center. The property also includes truck servicing and
fuel storage facilities.

The Companys milk processing and packaging subsidiary, Milkco, Inc., owns
an 101,000 square foot manufacturing and storage facility in Asheville,
North Carolina. In addition to the plant, the 11.5 acre property includes
truck servicing and fuel storage facilities.

Certain long-term debt of the Company is secured by the owned properties.
See Note 6 to the Consolidated Financial Statements of this report on Form
10-K for further details.

Leased Properties

The Company operates supermarkets at 66 locations leased from various
unaffiliated third parties. The Company also leases 25 supermarket
facilities in which it is not currently operating, 10 of which are subleased
to third parties. Certain of the leases give the Company the right of first
refusal to purchase the entire shopping center in which the supermarkets are
located. The majority of these leases require the Company to pay property
taxes, utilities, insurance, repairs and certain other expenses incidental
to occupation of the premises. In addition to base rent, most leases
require the Company to pay additional percentage rent (ranging from .75% to
1.5%) for sales in excess of a specified amount.

Rental rates generally range from $1.46 to $10.26 per square foot. During
fiscal years 2002, 2001 and 2000, the Company paid a total of $17.8 million,
$16.6 million and $15.2 million, respectively, in supermarket rent,
exclusive of property taxes, utilities, insurance, repairs and other
expenses. The following table summarizes lease expiration dates as of
September 28, 2002, with respect to the initial and any renewal option terms
of leased supermarkets:

|                          |  |                 |    | 
|------------------------- |  | --------------- | -- | 
|Year of Expiration        |  | Number of      
|(Including Renewal Terms) |  | Leases Expiring
|                          |  |                
|2003-2020                 |  |                 | 7  | 
|2021-2040                 |  |                 | 16 | 
|2041 or after             |  |                 | 68 | 

Management believes that the long-term rent stability provided by these
leases is a valuable asset of the Company.

8



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Item 3. LEGAL PROCEEDINGS

Various legal proceedings and claims arising in the ordinary course of
business are pending against the Company. In the opinion of management, the
ultimate liability, if any, from all pending legal proceedings and claims
would not materially affect the Companys financial position or the results
of its operations.

Item 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of the security holders during the
fourth quarter of the fiscal year covered by this report.

PART II

Item 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Market Information

The Company has two classes of Common Stock: Class A and Class B. Class A
Common Stock is traded on The Nasdaq Stock Markets National Market under
the symbol IMKTA. There is no public market for the Companys Class B
Common Stock. However, under the terms of the Companys Articles of
Incorporation, any holder of Class B Common Stock may convert any portion or
all of the holders shares of Class B Common Stock into an equal number of
 shares of Class A Common Stock at any time. As of November 21, 2002, there
were approximately 942 holders of record of the Companys Class A Common
Stock (approximately 4,550 beneficial holders) and 208 holders of record of
the Companys Class B Common Stock. The following table sets forth the
reported high and low closing sales price for the Class A Common Stock
during the periods indicated as reported in the National Market System. The
quotations reflect actual inter-dealer prices without retail mark-up,
mark-down or commission and may not necessarily represent actual
transactions.

|                                          |  |      |       |     |  |   |       | 
|----------------------------------------- |  | ---- | ----- | --- |  | - | ----- | 
|2002 Fiscal Year                          |  | High |       | Low
|                                          |  |      |       |    
|First Quarter (ended December 29, 2001)   |  | $    | 12.90 |     |  | $ | 11.37 | 
|Second Quarter (ended March 30, 2002)     |  | $    | 12.25 |     |  | $ | 10.82 | 
|Third Quarter (ended June 29, 2002)       |  | $    | 12.76 |     |  | $ | 11.31 | 
|Fourth Quarter (ended September 28, 2002) |  | $    | 12.50 |     |  | $ | 10.96 | 

|                                          |  |      |       |     |  |   |       | 
|----------------------------------------- |  | ---- | ----- | --- |  | - | ----- | 
|2001 Fiscal Year                          |  | High |       | Low
|                                          |  |      |       |    
|First Quarter (ended December 30, 2000)   |  | $    | 10.75 |     |  | $ | 9.25  | 
|Second Quarter (ended March 31, 2001)     |  | $    | 12.25 |     |  | $ | 10.00 | 
|Third Quarter (ended June 30, 2001)       |  | $    | 12.80 |     |  | $ | 10.18 | 
|Fourth Quarter (ended September 29, 2001) |  | $    | 13.40 |     |  | $ | 11.42 | 

On November 21, 2002, the closing sales price of the Companys Class A
Common Stock on The Nasdaq Stock Markets National Market was $11.36 per
share.

Dividends

The Company has paid cash dividends on its Common Stock in each of the past
twenty-two fiscal years, except for the 1984 fiscal year when the Company
paid a 3% stock dividend. During both fiscal 2002 and fiscal 2001 the
Company paid annual dividends totaling $.66 per share of Class A Common
Stock and $.60 per share of Class B Common Stock, paid in quarterly
installments of $.165 and $.15 per share, respectively.

The Company expects to continue paying regular cash dividends on a quarterly
basis. However, the Board of Directors periodically reconsiders the
declaration of dividends. The Company pays these dividends at the
discretion of the Board of Directors. The continuation of these payments,
the amount of such dividends, and the form in which the dividends are paid
(cash or stock) depends upon the results of operations, the financial
condition of the Company and other factors which the Board of Directors
deems relevant. The payment of dividends is also subject to restrictions
contained in certain financing arrangements. (See Note 6 to the
Consolidated Financial Statements of this report on Form 10-K).

9



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Item 6. SELECTED FINANCIAL DATA

The selected financial data set forth below has been derived from the
Companys consolidated financial statements. The information should be read
in conjunction with the information under the heading MANAGEMENTS
DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
and in the Companys Consolidated Financial Statements and Notes thereto
included elsewhere herein.

Selected Income Statement Data for the Year Ended September(in thousands except per share amounts)

|                                                            |  |      |           |      |  |      |           |      |  |         |           |  |  |   |           |  |  |   |           | 
|----------------------------------------------------------- |  | ---- | --------- | ---- |  | ---- | --------- | ---- |  | ------- | --------- |  |  | - | --------- |  |  | - | --------- | 
|                                                            |  | 2002 |           | 2001 |  | 2000 |           | 1999 |  | 1998(1)
|                                                            |  |      |           |      |  |      |           |      |  |        
|Net Sales                                                   |  | $    | 1,960,462 |      |  | $    | 1,953,440 |      |  | $       | 1,916,200 |  |  | $ | 1,805,375 |  |  | $ | 1,647,152 | 
|Income Before
Extraordinary Item                            |  |      | 15,295    |      |  |      | 17,850    |      |  |         | 21,091    |  |  |   | 18,750    |  |  |   | 4,163     | 
|Diluted Earnings per
Common Share Before
Extraordinary Item |  |      | .66       |      |  |      | .79       |      |  |         | .93       |  |  |   | .83       |  |  |   | .19       | 
|Cash Dividends per
Common Share                             |  |      |           |      |  |      |           |      |  |         |           |  |  |   |           |  |  |   |           | 
|Class A                                                     |  |      | .66       |      |  |      | .66       |      |  |         | .66       |  |  |   | .66       |  |  |   | .66       | 
|Class B                                                     |  |      | .60       |      |  |      | .60       |      |  |         | .60       |  |  |   | .60       |  |  |   | .60       | 

Selected Balance Sheet Data at September(in thousands)

|                                                                 |  |      |           |      |  |      |         |      |  |      |         |  |  |   |         |  |  |   |         | 
|---------------------------------------------------------------- |  | ---- | --------- | ---- |  | ---- | ------- | ---- |  | ---- | ------- |  |  | - | ------- |  |  | - | ------- | 
|                                                                 |  | 2002 |           | 2001 |  | 2000 |         | 1999 |  | 1998
|                                                                 |  |      |           |      |  |      |         |      |  |     
|Current Assets                                                   |  | $    | 277,829   |      |  | $    | 234,050 |      |  | $    | 219,581 |  |  | $ | 212,761 |  |  | $ | 196,039 | 
|Property and Equipment,
net                                      |  |      | 723,220   |      |  |      | 724,443 |      |  |      | 702,472 |  |  |   | 656,707 |  |  |   | 661,772 | 
|Total Assets                                                     |  |      | 1,014,391 |      |  |      | 962,801 |      |  |      | 927,766 |  |  |   | 873,171 |  |  |   | 862,787 | 
|Current Liabilities,
including Current
Portion of Long-Term
Debt |  |      | 186,430   |      |  |      | 196,598 |      |  |      | 197,522 |  |  |   | 203,645 |  |  |   | 176,968 | 
|Long-Term Liabilities,
net of Current Portion (2)                |  |      | 552,487   |      |  |      | 492,638 |      |  |      | 462,591 |  |  |   | 417,389 |  |  |   | 442,648 | 
|Stockholders Equity                                             |  |      | 238,559   |      |  |      | 236,500 |      |  |      | 232,138 |  |  |   | 224,122 |  |  |   | 218,236 | 



|(1) |  | During 1998, the Company recorded a non-recurring charge relating to
a litigation settlement of $14.6 million, or ($.41) per share.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Excludes long-term deferred income tax liability.                                                                                  

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|        |  |                                                                                      
|------- |  | -------------------------------------------------------------------------------------
|Item 7. |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

Ingles, a leading supermarket chain in the Southeast, operates 198
supermarkets in Georgia (83), North Carolina (60), South Carolina (31),
Tennessee (21), Virginia (2) and Alabama (1). The Company locates its
supermarkets primarily in suburban areas, small towns and rural communities.
Ingles supermarkets offer customers a wide variety of nationally advertised
food products, including grocery, meat and dairy products, produce, frozen
foods and other perishables and non-food products, including health and
beauty care products and general merchandise, as well as quality private
label items. In addition, the Company focuses on selling high-growth,
high-margin products to its customers through the development of book
sections, media centers, floral departments, bakery departments and prepared
foods including delicatessen sections. The Company recently began adding
fuel centers and pharmacies at select store locations. As of September 28,
2002 the Company operates 15 in-store pharmacies and 11 fuel centers.

Ingles also operates two other lines of business, fluid dairy processing and
shopping center rentals. The fluid dairy processing segment sells
approximately 32% of its products to the retail grocery segment and
approximately 68% of its products to third parties. Real estate ownership
(including the shopping center rental segment) is an important component of
the Companys operations, providing both operational and economic benefit.

Critical Accounting Policies

Critical accounting policies are those accounting policies that management
believes are important to the portrayal of Ingles financial condition and
results of operations, and require managements most difficult, subjective
or complex judgements, often as a result of the need to make estimates about
the effect of matters that are inherently uncertain.

Self-Insurance

The Company is self-insured for workers compensation and group medical and
dental benefits. Risks and uncertainties are associated with
self-insurance; however, the Company has limited its exposure by maintaining
excess liability coverages. Self-insurance reserves are established based
on claims filed and estimates of claims incurred but not reported. The
estimates are based on data provided by the respective claims
administrators. The majority of the Companys properties are self-insured
for casualty losses and business interruption; however, liability coverage
is maintained.

Asset Impairments

The Company has accounted for the impairment of long-lived assets in
accordance with Statement of Financial Accounting Standards No. 121 and,
beginning in fiscal 2003, will account for it in accordance with Statement
of Financial Accounting Standards No. 144. For assets to be held and used,
the Company tests for impairment using undiscounted cash flows and
calculates the amount of impairment using discounted cash flows. For assets
held for sale, impairment is recognized based on the excess of remaining
book value over expected recovery value. The recovery value is the fair
value as determined by independent quotes or expected sales prices developed
by internal specialists. Estimates of future cash flows and expected sales
prices are judgements based upon the Companys experience and knowledge of
local operations and cash flows that are projected for several years into
the future. These estimates can fluctuate significantly due to changes in
real estate market conditions, the economic environment, capital spending
decisions and inflation.

Closed Store Accrual

For properties to be closed that are under long-term lease agreements, the
present value of any remaining liability under the lease, discounted using
risk-free rates and net of expected sublease recovery, is recognized as a
liability and expensed. If the real estate and leasing markets change,
sublease recovery could vary significantly from the recoveries originally
assumed, resulting in a material change in the Companys recorded liability.

Results of Operations

Ingles operates on a 52 or 53-week fiscal year ending on the last Saturday
in September. The consolidated statements of income for the fiscal years
ended September 28, 2002 and September 29, 2001 include 52 weeks of
operations. The consolidated statement of income for the fiscal year ended
September 30, 2000 includes 53 weeks of operations. Comparable store sales
are defined as sales by grocery stores in operation for the entire duration
of the

11



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previous and current fiscal years. Replacement stores and major and minor
remodels are included in the comparable store sales calculation. A
replacement store is a new store that is opened to replace an existing
nearby store that is closed. A major remodel entails substantial remodeling
of an existing store and may include additional retail square footage. A
minor remodel includes repainting, remodeling and updating the lighting and
equipment throughout an existing store.

The following table sets forth, for the periods indicated, selected financial
information as a percentage of net sales. For information regarding the
various segments of the business, reference is made to Note 11 Lines of
Business to the Consolidated Financial Statements.

|                                                            |  |                    |       |      |  |      |       |   |  |  |       |  
|----------------------------------------------------------- |  | ------------------ | ----- | ---- |  | ---- | ----- | - |  |  | ----- | -
|                                                            |  | Fiscal Years Ended
|                                                            |  |                   
|                                                            |  | 2002               |       | 2001 |  | 2000
|                                                            |  |                    |       |      |  |     
|Net sales                                                   |  |                    | 100.0 | %    |  |      | 100.0 | % |  |  | 100.0 | %
|Gross profit                                                |  |                    | 26.6  |      |  |      | 26.2  |   |  |  | 25.6  |  
|Operating and administrative expenses                       |  |                    | 23.5  |      |  |      | 23.3  |   |  |  | 22.6  |  
|Rental income, net                                          |  |                    | 0.5   |      |  |      | 0.5   |   |  |  | 0.5   |  
|Income from operations                                      |  |                    | 3.6   |      |  |      | 3.4   |   |  |  | 3.5   |  
|Other income, net                                           |  |                    | 0.3   |      |  |      | 0.2   |   |  |  | 0.4   |  
|Income before interest, income taxes and extraordinary
item |  |                    | 3.9   |      |  |      | 3.6   |   |  |  | 3.9   |  
|Interest expense                                            |  |                    | 2.7   |      |  |      | 2.2   |   |  |  | 2.1   |  
|Income before income taxes and extraordinary item           |  |                    | 1.2   |      |  |      | 1.4   |   |  |  | 1.8   |  
|Income taxes                                                |  |                    | 0.4   |      |  |      | 0.5   |   |  |  | 0.7   |  
|Income before extraordinary item                            |  |                    | 0.8   |      |  |      | 0.9   |   |  |  | 1.1   |  
|Net income                                                  |  |                    | 0.8   |      |  |      | 0.9   |   |  |  | 1.1   |  
|EBITDA margin(1)                                            |  |                    | 6.3   |      |  |      | 6.0   |   |  |  | 6.2   |  
|EBITDAR margin(1)                                           |  |                    | 8.5   |      |  |      | 7.9   |   |  |  | 7.8   |  



---

|(1) |  | EBITDA is defined as earnings before interest, income taxes,
depreciation and amortization, non-recurring charges and
extraordinary items. EBITDAR is defined as EBITDA plus rent
expense. Management believes that EBITDA and EBITDAR are useful
measures of operating performance. EBITDA and EBITDAR do not
represent cash flow from operations as defined by accounting
principles generally accepted in the United States (GAAP), are not
necessarily indicative of cash available to fund all cash flow
needs and should not be considered as alternatives to net income
under GAAP for evaluating Ingles results of operations.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Fiscal Year Ended September 28, 2002 Compared to the Fiscal Year Ended September 29, 2001

Net Sales.Fiscal 2002 was the 38th consecutive year Ingles achieved an
increase in net sales. Net sales increased 0.4% to $1.960 billion for the
fiscal year ended September 28, 2002 from $1.953 billion for the fiscal year
ended September 29, 2001, despite a decrease in store count from 203 stores
at September 29, 2001 to 198 stores at September 28, 2002. During fiscal
2002, Ingles opened one replacement store, closed five older stores and
completed two major remodel/expansions and ten minor remodels. Retail square
footage decreased 0.9% to 9.0 million square feet. Comparable store sales
for the same period grew 0.9%. The Companys milk processing subsidiary
reported an increase in sales to outside parties of 6.1% for fiscal year
2002 compared to fiscal year 2001.

Gross Profit.Gross profit for the fiscal year ended September 28, 2002,
increased 1.8% to $520.7 million, or 26.6% of sales, compared to $511.6
million, or 26.2% of sales, for the fiscal year ended September 29, 2001.
Increased sales in the higher margin produce and frozen food departments,
enhanced security measures and effective purchasing and product management
all contributed to the increase. Gross profit for the Companys milk
processing subsidiary increased 19.5% for fiscal year 2002 compared to
fiscal year 2001 due primarily to sales increases in the higher margin food
service sector of the business.

Operating and Administrative Expenses.Operating and administrative
expenses increased 1.3% to $460.6 million for the year ended September 28,
2002, from $454.6 million for the year ended September 29, 2001. As a
percentage of sales, operating and administrative expenses were 23.5% and
23.3% for the years ended September 28, 2002 and September 29, 2001,
respectively. A variety of factors contributed to the increase.

12



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A breakdown of the major increases (decreases) in operating and
administrative expenses, expressed as a percentage of sales, is as follows:

|                   |  |  |      |   
|------------------ |  |  | ---- | --
|Salaries and wages |  |  | (0.2 | )%
|Depreciation       |  |  | 0.2  | % 
|Equipment rent     |  |  | 0.1  | % 
|Warehouse expense  |  |  | (0.1 | )%
|Insurance          |  |  | 0.1  | % 

Salaries and wages, as a percentage of sales, decreased due to the revision
of the Companys labor standards during fiscal 2002 to reflect changes made
in the merchandising and operations of the stores. A new electronic program
for front-end labor scheduling was implemented between April 2002 and August
2002.

Depreciation expense and equipment rent expense increased due to the
remodeling and replacement of certain store locations during the prior and
current fiscal years.

Warehouse expense decreased as a percentage of sales primarily due to lower
diesel fuel prices.

The increase in insurance expense is attributable to rising health care
costs and increased premiums for liability coverages. Changes made to the
Companys health insurance plan in April 2002 helped to curb the cost of
health insurance in the latter half of the year, however the medical
component of workers compensation continued to negatively impact insurance
expense.

Rental Income, Net.Rental income, net increased $0.1 million to $10.4
million for the 2002 year from $10.3 million for the 2001 year. The
improvement consists of gross rental income increases of $0.4 million net of
operating cost increases of $0.3 million.

Other Income, Net.Other income, net increased $1.2 million to $5.1 million
for the year ended September 28, 2002 from $3.9 million for the year ended
September 29, 2001. Interest income, included in other income, net,
increased $1.0 million due to the investment of the proceeds of the
Companys 8-7/8% Senior Subordinated Notes issued in December 2001. Other
income also includes gains on the sale of assets of $1.5 million and $1.4
million for fiscal years 2002 and 2001, respectively.

Income Before Interest, Income Taxes and Extraordinary Item.Income before
interest, income taxes and extraordinary item increased $4.4 million to
$75.5 million, during the 2002 fiscal year compared to $71.1 million during
the 2001 fiscal year. Income before interest, income taxes and extraordinary
item, as a percentage of sales, was 3.9% and 3.6% for the 2002 and 2001
fiscal years, respectively.

Interest Expense.Interest expense increased $8.6 million for the year ended
September 28, 2002 to $51.5 million from $42.9 million for the year ended
September 29, 2001 due to the issuance in December 2001 of the Companys
$250 million 8-7/8% Senior Subordinated Notes, due December 2011 (the
Notes). A portion of the proceeds of the Notes was used to repay $170.0
million of existing debt. Debt retired with the proceeds from the Notes
generally had lower interest rates and shorter maturity than the Notes. In
addition, interest capitalized on the construction of assets declined $1.6
million in fiscal 2002 compared to fiscal 2001 due to a reduction in capital
expenditures.

Income Taxes.Income tax expense as a percentage of pre-tax income
decreased to 36.3% in the 2002 year compared to 36.7% in fiscal 2001.

Income Before Extraordinary Item.Income before the extraordinary item
(discussed below) for the 2002 fiscal year was $15.3 million, or 0.8% of
sales, compared to $17.9 million, or 0.9% of sales, for the 2001 fiscal
year. Diluted earnings per common share before the extraordinary item were
$.66 for the 2002 year compared to $.79 for the 2001 year. Increased
interest expense was the primary factor contributing to the decrease.

Extraordinary Item-Early Extinguishment of Debt.The Company incurred $0.6
million in costs, net of income tax benefits of $0.4 million, in connection
with the early retirement of $170.0 million of debt with a portion of the
proceeds from the Notes offering in December 2001.

Net Income.Net income for the year ended September 28, 2002 was $14.7
million compared to $17.9 million for the year ended September 29, 2001.
Net income, as a percentage of sales, was 0.8% for the fiscal 2002 period
compared to 0.9% for the fiscal 2001 period. Basic earnings per share were
$.65 and $.79 for 2002 and 2001, respectively. Diluted earnings per share
were $.64 and $.79 per share for 2002 and 2001, respectively.

13



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Fiscal Year Ended September 29, 2001 Compared to the Fiscal Year Ended September 30, 2000

Net Sales.Net sales increased 1.9% to $1.953 billion for the fiscal year
ended September 29, 2001 from $1.916 billion for the fiscal year ended
September 30, 2000. Fiscal year 2001 contained 52 weeks compared to 53
weeks in fiscal 2000. Net sales increased 3.9%, adjusted for the difference
in weeks. Comparable store sales grew 3.6%.

During fiscal 2001, Ingles opened two new stores and six replacement stores,
closed seven older stores and completed three major remodel/expansions and
six minor remodels. Retail square footage increased by 1.9% to 9.1 million
square feet. Investments made in maturing new stores, remodeled stores and
stores that have been replaced were contributors to sales growth. Successful
marketing campaigns such as the Safari Challenge game and sponsorship of
various community events and sports teams also contributed to sales growth.

Gross Profit.Gross profit for the fiscal year ended September 29, 2001,
increased 4.2% to $511.6 million, or 26.2% of sales, compared to $490.9
million, or 25.6% of sales, for the fiscal year ended September 30, 2000.
Expansion of the higher margin perishable departments, effective purchasing
and reduced product loss due to security measures all contributed to the
gross margin growth.

Operating and Administrative Expenses.Operating and administrative
expenses increased 5.1% to $454.6 million for the year ended September 29,
2001, from $432.6 million for the year ended September 30, 2000. As a
percentage of sales, operating and administrative expenses were 23.3% and
22.6% for the years ended September 29, 2001 and September 30, 2000,
respectively. A variety of factors contributed to the increase. Higher
payroll costs resulted primarily from increased wage rates in a competitive
labor market. Equipment rent expense increases resulted from the leasing of
store equipment for new and replacement stores. Utility expense increases
resulted primarily from increases in fuel costs at the store level.
Insurance expense increased primarily due to a larger volume of claims under
the Companys self-insured group medical program. A breakdown of the major
increases (decreases) in operating and administrative expenses, expressed as
a percentage of sales, is as follows:

|                       |  |  |      |   
|---------------------- |  |  | ---- | --
|Payroll                |  |  | 0.3  | % 
|Equipment rent expense |  |  | 0.2  | % 
|Utilities              |  |  | 0.2  | % 
|Insurance              |  |  | 0.1  | % 
|Advertising            |  |  | (0.1 | )%

Rental Income, Net.Rental income, net increased $0.2 million to $10.3
million for the 2001 year from $10.1 million for the 2000 year. The
improvement consists of gross rental income increases of $0.7 million and
operating cost increases of $0.5 million.

Other Income, Net.Other income, net decreased $3.1 million to $3.9 million
for the year ended September 29, 2001 from $7.0 million for the year ended
September 30, 2000. Other income includes gains on the sale of assets of
$1.4 million and $2.7 million for fiscal years 2001 and 2000, respectively.
The balance of the decrease resulted primarily from a reduction in proceeds
from vendor accounts payable audits.

Income Before Interest and Income Taxes.Income before interest and income
taxes decreased $4.3 million to $71.1 million, during the 2001 fiscal year
compared to $75.4 million during the 2000 fiscal year. Income before
interest and income taxes, as a percentage of sales, was 3.6% and 3.9% for
the 2001 and 2000 fiscal years, respectively.

Interest Expense.Interest expense increased $1.7 million for the year ended
September 29, 2001 to $42.9 million from $41.2 million for the year ended
September 30, 2000. The increase resulted from interest on additional debt
incurred to fund expansion and renovation, offset somewhat by lower interest
rates.

Income Taxes.Income tax expense as a percentage of pre-tax income
decreased to 36.7% in the 2001 year compared to 38.3% in fiscal 2000, due
primarily to increased tax credits related to training and employment.

Net Income.Net income for the 2001 fiscal year was $17.9 million, or 0.9%
of sales, compared to $21.1 million, or 1.1% of sales, for the 2000 fiscal
year. Basic and diluted earnings per common share were $.79 for the 2001
year compared to $.93 for the 2000 year.

14



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Liquidity and Capital Resources

Capital Expenditures

The Company believes that a key to its ability to continue to develop a
loyal customer base is providing conveniently located, clean and modern
stores which provide customers with good service and a broad selection of
competitively priced products. As such, the Company has invested and will
continue to invest significant amounts of capital toward the modernization
of its store base. The Companys modernization program includes the opening
of new stores, the completion of major remodels and expansion of selected
existing stores, the relocation of selected existing stores to larger, more
convenient locations and the completion of minor remodeling of its remaining
existing stores.

Capital expenditures totaled $49.7 million for the fiscal year ended
September 28, 2002, including the replacement of one store, major remodel
and expansion of two stores and minor remodels at ten stores. Capital
expenditures also included the costs of upgrading and replacing store
equipment, technology investments, the purchase of future store sites,
capital expenditures related to the Companys distribution operation and its
milk processing plant, and expenditures for stores to open in fiscal 2003.

Ingles capital expenditure plans for fiscal 2003 include investments of
approximately $70 million. The Company plans to open four new stores,
replace one existing store and complete three remodel/expansions and three
minor remodels. Expenditures will also include investments in stores
expected to open in fiscal 2004 as well as technology improvements,
upgrading and replacing existing store equipment and warehouse and
transportation equipment and improvements to the Companys milk processing
plant.

Liquidity

The Company generated $52.0 million of cash from operations in fiscal 2002.

Cash used by investing activities totaled $43.6 million comprised primarily
of $49.7 million of capital expenditures during the period, partially offset
by $6.1 million of proceeds from the sale of assets.

The Company has generally funded its capital expenditures with cash provided
from operations and borrowings under lines of credit. The lines of credit
are later refinanced with secured long-term debt. During fiscal year 2002,
the Companys financing activities provided $26.0 million in cash. Proceeds
from long-term debt totaled $272.3 million, including the issuance of the
Notes, while payments on long-term and short-term debt were $225.2 million,
including the $170.0 million of early debt retirement with a portion of the
proceeds from the Notes. Debt issuance costs of $9.7 million associated with
the issuance of the Notes reduced cash from financing activities.

At September 28, 2002, the Company had lines of credit with seven banks
totaling $150 million, all of which were unused. Of the $150 million of
committed lines of credit, $130 million matures in October 2004 and $20
million matured in October 2002. The lines provide the Company with various
interest rate options generally at rates less than prime. The Company is not
required to maintain compensating balances in connection with these lines of
credit. The Company was in compliance with all financial covenants related
to these lines of credit at September 28, 2002.

The Companys principal sources of liquidity are expected to be cash flow
from operations, borrowings under its lines of credit and long-term
financing. As of September 28, 2002, the Company had unencumbered real
property and equipment with a net book value of approximately $286 million.
The Company believes, based on its current results of operations and
financial condition, that its financial resources, including existing bank
lines of credit, short- and long-term financing expected to be available to
it and internally generated funds, will be sufficient to meet planned
capital expenditures and working capital requirements for the foreseeable
future, including any debt service requirements of additional borrowings.
However, there can be no assurance that any such sources of financing will
be available to the Company on acceptable terms, or at all.

In addition, it is possible that, in the future, the Companys results of
operations and financial condition will be different from that described in
this report based on a number of intangible factors. These factors may
include, among others, increased competition, changing regional and national
economic conditions, adverse climatic conditions affecting food production
and delivery and changing demographics as well as the additional factors
discussed below under Forward Looking Statements. It is also possible,
for such reasons, that the results of operations from the new, expanded,
remodeled and/or replacement stores will not meet or exceed the results of
operations from existing stores that are described in this report.

15



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Quarterly Cash Dividends

Since December 27, 1993, the Company has paid regular quarterly cash
dividends of $.165 (sixteen and one-half cents) per share on its Class A
Common Stock and $.15 (fifteen cents) per share on its Class B Common Stock
for an annual rate of $.66 and $.60 per share, respectively.

The Company expects to continue paying regular cash dividends on a quarterly
basis. However, the Board of Directors periodically reconsiders the
declaration of dividends. The Company pays these dividends at the
discretion of the Board of Directors and the continuation of these payments,
the amount of such dividends, and the form in which the dividends are paid
(cash or stock) depends upon the results of operations, the financial
condition of the Company and other factors which the Board of Directors
deems relevant. In addition, certain loan agreements containing provisions
outlining minimum tangible net worth requirements, restrict the ability of
the Company to pay additional dividends to approximately $29.8 million based
on tangible net worth at September 28, 2002. Further, the Company is
prevented from paying dividends at any time that it is in default under the
indenture governing the Notes. In addition, the terms of the indenture may
restrict the ability of the Company to pay additional dividends based on
certain financial parameters.

Impact of Inflation

Inflation in food prices during fiscal 2002 and 2001 was slightly higher
than the overall increase in the Consumer Price Index. During fiscal 2000,
inflation in food prices was lower than the overall increase in the Consumer
Price Index. One of the Companys significant costs is labor, which
increases with inflation.

New Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board (FASB) issued
Statements No. 141, Business Combinations (FAS 141) and No. 142,
Goodwill and Other Intangible Assets (FAS 142). Under the new rules,
goodwill and indefinite lived intangible assets are no longer amortized but
are reviewed annually for impairment. Separable intangible assets that are
not deemed to have an indefinite life will continue to be amortized over
their useful lives. The amortization provisions of FAS 142 apply to
goodwill and intangible assets acquired after June 30, 2001. With respect
to goodwill and intangible assets acquired prior to July 1, 2001, the
Company applied the new accounting rules on September 30, 2001. The
adoption of FAS 141 and FAS 142 did not have any impact on the Companys
financial statements.

In August 2001, the FASB issued Statement No. 143 Accounting for Asset
Retirement Obligations that provides accounting guidance for the costs of
retiring long-lived assets and is effective for fiscal years beginning after
June 15, 2002. The Company does not believe the adoption of this statement
will have any impact on its financial statements.

In October 2001, the FASB issued Statement No. 144 Accounting for the
Impairment or Disposal of Long-Lived Assets (FAS 144). FAS 144 provides
accounting guidance for financial accounting and reporting for the
impairment or disposal of long-lived assets. The statement supercedes FASB
Statement No. 121, Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of (FAS 121). It also supercedes
the accounting and reporting provisions of APB Opinion No. 30 Reporting the
Results of Operations  Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions related to the disposal of a segment of a business. FAS 144 is
effective for fiscal years beginning after December 15, 2001. The Company
is currently assessing the impact adopting this statement will have on its
financial statements.

In April 2002, the FASB issued Statement No. 145, Modifications to Reporting
of Extinguishments of Debt and Accounting for Certain Capital Lease
Modifications and Technical Corrections (FAS 145). FAS 145 will require
gains and losses on extinguishments of debt to be classified as income or
loss from continuing operations rather than as extraordinary items as
previously required under FASB Statement No. 4. Extraordinary treatment will
be required for certain extinguishments as provided in APB Opinion No. 30.
FAS 145 also amends FASB Statement No. 13 to require certain modifications
to capital leases be treated as a sale-leaseback and modifies the accounting
for sub-leases when the original lessee remains a secondary obligor (or
guarantor). In addition, the FASB rescinded Statement No. 44 which addressed
the accounting for intangible assets of motor carriers and made numerous
technical corrections. In fiscal 2003, the Company will reclassify the losses
on extinguishment of debt incurred during 2002 from an extraordinary item to
a reduction in income from continuing operations.

16



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Forward Looking Statements

This Annual Report contains certain forward-looking statements within the
meaning of Section 21E of the Securities Exchange Act of 1934. The words
expect, anticipate, intend, plan, believe, seek and similar
expressions are intended to identify forward-looking statements. While these
forward-looking statements and the related assumptions are made in good faith
and reflect our current judgment regarding the direction of our business,
actual results will almost always vary, sometimes materially, from any
estimates, predictions, projections, assumptions or other future performance
suggested herein. Such statements are based upon a number of assumptions and
estimates which are inherently subject to significant risks and uncertainties
many of which are beyond our control. Some of these assumptions inevitably
will not materialize, and unanticipated events will occur which will affect
our results. Some important factors (but not necessarily all factors) that
affect our revenues, growth strategies, future profitability and operating
results, or that otherwise could cause actual results to differ materially
from those expressed in or implied by any forward-looking statement,
including business and economic conditions generally in the Companys
operating area;
the Companys ability to successfully implement its expansion and operating
strategies and to manage rapid expansion;
pricing pressures and other competitive factors; the Companys ability to
reduce costs and achieve improvements in operating results; the availability
and terms of financing; increases in labor and utility costs; success or
failure in the ownership and development of real estate; and changes in the
laws and government regulations applicable to the Company.

Consequently, actual events affecting the Company and the impact of such
events on the Companys operations may vary significantly from those
described in this report or contemplated or implied by statements in this
report.

Item 7(a). QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

The Company is exposed to changes in financial market conditions in the
normal course of its business as a result of its use of bank debt to finance
its retail grocery and real estate lines of business.

The Company is exposed to changes in interest rates primarily as a result of
its borrowing activities, which include borrowings under lines of credit,
real estate and equipment financing and the Notes. The lines of credit,
along with cash flow from operations, are used to maintain liquidity and
fund business operations. The Company typically replaces borrowings under
its lines of credit, as necessary, with both long-term secured and unsecured
fixed rate financing. The nature and amount of the Companys debt may vary
as a result of future business requirements, market conditions and other
factors. The definitive extent of the Companys interest rate risk is not
quantifiable or predictable because of the variability of future interest
rates and business financing requirements, but the Company does not believe
such risk is material. The Company does not customarily use derivative
instruments to adjust the Companys interest rate risk profile.

The table below presents principal amounts and related weighted average
rates by year of maturity for the Companys debt obligations at September
28, 2002 and September 29, 2001 (in thousands):

|                                 |  |      |        |      |  |      |        |      |  |      |        |            |  |       |        |            |  |   |        |   |  |   |         |   |  |   |         |   |  |   |         | 
|-------------------------------- |  | ---- | ------ | ---- |  | ---- | ------ | ---- |  | ---- | ------ | ---------- |  | ----- | ------ | ---------- |  | - | ------ | - |  | - | ------- | - |  | - | ------- | - |  | - | ------- | 
|September 28, 2002               |  | 2003 |        | 2004 |  | 2005 |        | 2006 |  | 2007 |        | Thereafter |  | Total |        | Fair Value
|                                 |  |      |        |      |  |      |        |      |  |      |        |            |  |       |        |           
|Lines of credit                  |  |      |       |      |  |      |       |      |  |      |       |            |  |       |       |            |  |   |       |   |  |   |        |   |  |   |        |   |  |   |        | 
|Average interest
rate
(variable) |  |      |       |      |  |      |       |      |  |      |       |            |  |       |       |            |  |   |       |   |  |   |        |   |  |   |        |   |  |   |        | 
|Long-term debt                   |  | $    | 47,307 |      |  | $    | 37,742 |      |  | $    | 40,908 |            |  | $     | 16,364 |            |  | $ | 31,353 |   |  | $ | 422,956 |   |  | $ | 596,632 |   |  | $ | 581,950 | 
|Average interest
rate (fixed)    |  |      | 8.13   | %    |  |      | 8.84   | %    |  |      | 7.82   | %          |  |       | 8.24   | %          |  |   | 8.64   | % |  |   | 8.88    | % |  |   | 8.71    | % |  |   |         | 

|                                 |  |      |        |      |  |      |         |      |  |      |        |            |  |       |        |            |  |   |        |   |  |   |         |   |  |   |         |   |  |   |         | 
|-------------------------------- |  | ---- | ------ | ---- |  | ---- | ------- | ---- |  | ---- | ------ | ---------- |  | ----- | ------ | ---------- |  | - | ------ | - |  | - | ------- | - |  | - | ------- | - |  | - | ------- | 
|September 29, 2001               |  | 2002 |        | 2003 |  | 2004 |         | 2005 |  | 2006 |        | Thereafter |  | Total |        | Fair Value
|                                 |  |      |        |      |  |      |         |      |  |      |        |            |  |       |        |           
|Lines of credit                  |  |      |       |      |  | $    | 61,024  |      |  |      |       |            |  |       |       |            |  |   |       |   |  |   |        |   |  | $ | 61,024  |   |  | $ | 61,024  | 
|Average interest
rate
(variable) |  |      |       |      |  |      | 4.88    | %    |  |      |       |            |  |       |       |            |  |   |       |   |  |   |        |   |  |   | 4.88    | % |  |   |        | 
|Long-term debt                   |  | $    | 60,852 |      |  | $    | 102,258 |      |  | $    | 48,854 |            |  | $     | 42,681 |            |  | $ | 17,852 |   |  | $ | 216,024 |   |  | $ | 488,521 |   |  | $ | 495,868 | 
|Average interest
rate (fixed)    |  |      | 7.95   | %    |  |      | 7.72    | %    |  |      | 8.32   | %          |  |       | 7.88   | %          |  |   | 8.45   | % |  |   | 8.53    | % |  |   | 8.21    | % |  |   |         | 

The Company does not typically utilize financial instruments for trading or
other speculative purposes, nor does it typically utilize leveraged financial
instruments. On the basis of the fair value of the Companys market
sensitive

17



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instruments at September 28, 2002, the Company does not consider the
potential near-term losses in future earnings, fair values and cash flows
from reasonable possible near-term changes in interest rates and exchange
rates to be material.

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The following consolidated financial statements of the Company are included
on pages 23 through 41 of this report on Form 10-K:

Report of Ernst & Young LLP, Independent Auditors;

Consolidated Balance Sheets as of September 28, 2002 and September 29, 2001;

Consolidated Statements of Income for the years ended September 28, 2002,
September 29, 2001, and September 30, 2000;

Consolidated Statements of Changes in Stockholders Equity for the years
ended September 28, 2002, September 29, 2001, and September 30, 2000;

Consolidated Statements of Cash Flows for the years ended September 28, 2002,
September 29, 2001, and September 30, 2000;

Notes to Consolidated Financial Statements;

Selected quarterly financial data required by this Item is included in Note
12 of the Consolidated Financial Statements.

Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

18



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PART III

Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required by this Item is incorporated herein by reference
from the data under the heading ELECTION OF DIRECTORS in the Proxy
Statement to be used in connection with the solicitation of proxies for the
Companys annual meeting of stockholders to be held February 11, 2003, to be
filed with the Securities and Exchange Commission (the Commission).

Item 11. EXECUTIVE COMPENSATION

The information required by this Item is incorporated herein by reference
from the data under the heading EXECUTIVE COMPENSATION in the Proxy
Statement to be used in connection with the solicitation of proxies for the
Companys annual meeting of stockholders to be held February 11, 2003, to be
filed with the Commission.

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this Item is incorporated herein by reference
from the data under the heading SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN
BENEFICIAL OWNERS in the Proxy Statement to be used in connection with the
solicitation of proxies for the Companys annual meeting of stockholders to
be held February 11, 2003, to be filed with the Commission.

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this Item is incorporated herein by reference
from the data under the headings ELECTION OF DIRECTORS  Additional
Information with Respect to Compensation Committee Interlocks and Insider
Participation in Compensation Decisions and CERTAIN RELATIONSHIPS AND
RELATED PARTY TRANSACTIONS in the Proxy Statement to be used in connection
with the solicitation of proxies for the Companys annual meeting of
stockholders to be held February 11, 2003, to be filed with the Commission.

Item 14. CONTROLS AND PROCEDURES

As of September 28, 2002, an evaluation was performed under the supervision
and with the participation of Ingles management, including the Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of Ingles disclosure controls and procedures, as such
term is defined under Rule 13a  14(c) promulgated under the Securities
Exchange Act of 1934, as amended (the Exchange Act). Based on that
evaluation, Ingles management, including the Chief Executive Officer and
Chief Financial Officer, concluded that Ingles disclosure controls and
procedures were effective as of September 28, 2002 at insuring that required
information will be disclosed on a timely basis in Ingles reports filed
under the Exchange Act. No significant changes in Ingles internal controls
or in other factors have occurred that could significantly affect controls
subsequent to September 28, 2002.

PART IV

Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

|    |  |                                                                                                                                                |  | 
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------- |  | 
|(a) |  | Documents filed as part of this report:                                                                                                       
|    |  |                                                                                                                                                |  | 
|    |  | 1.      The following financial statements of the Registrant are included in
response to Item 8 of this 10-K:                                 
|    |  |                                                                                                                                                |  | 
|    |  | Consolidated Balance Sheets as of September 28, 2002 and September 29,
2001;                                                                  
|    |  |                                                                                                                                                |  | 
|    |  | Consolidated Statements of Income for the years ended September 28,
2002, September 29, 2001, and September 30, 2000;                         
|    |  |                                                                                                                                                |  | 
|    |  | Consolidated Statements of Changes in Stockholders Equity for the
years ended September 28, 2002, September 29, 2001, and September
30, 2000;
|    |  |                                                                                                                                                |  | 
|    |  | Consolidated Statements of Cash Flows for the years ended September
28, 2002, September 29, 2001, and September 30, 2000;                     

19



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| |  |                                                                                                                                                                                                                   |  | 
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | 
| |  | Notes to Consolidated Financial Statements.                                                                                                                                                                      
| |  |                                                                                                                                                                                                                   |  | 
| |  | 2.      The following financial statement schedule of the Registrant
required by Item 8 and Item 15(d) of Form 10-K is included as page
42 of this report:                                                       
| |  |                                                                                                                                                                                                                   |  | 
| |  | Schedule II  Supplemental schedule of valuation and qualifying
accounts.                                                                                                                                        
| |  |                                                                                                                                                                                                                   |  | 
| |  | All other schedules for which provision is made in the applicable
accounting regulations of the Commission are not required under the
related instructions or are inapplicable and, therefore, have been
omitted.
| |  |                                                                                                                                                                                                                   |  | 
| |  | 3.      The following exhibits required by Item 601 of Regulation S-K
and Item 15(c) of Form 10-K are filed herewith or incorporated by
reference as indicated.                                                  

EXHIBIT NUMBER AND DESCRIPTION

|     |  |                                                                                                                                                                                                                                                                                                                                                                                       
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1  |  | Articles of Incorporation of Ingles Markets, Incorporated, as
amended. (Included as Exhibit 3.1 to Registrants S-1 Registration
Statement, File No. 33-23919, previously filed with the Commission and
incorporated herein by this reference.)                                                                                                                                       
|     |  |                                                                                                                                                                                                                                                                                                                                                                                       
|3.2  |  | By-laws of Ingles Markets, Incorporated. (Included as Exhibit 3.2 to
Registrants Annual Report on Form 10-K for the fiscal year ended
September 24, 1988, File No. 0-14706, previously filed with the
Commission and incorporated herein by this reference.)                                                                                                                         
|     |  |                                                                                                                                                                                                                                                                                                                                                                                       
|4.1  |  | See Exhibits 3.1 and 3.2 for provisions of Articles of Incorporation,
as amended and By-laws of Registrant defining rights of holders of
capital stock of Registrant.                                                                                                                                                                                                                 
|     |  |                                                                                                                                                                                                                                                                                                                                                                                       
|4.2  |  | Loan Agreement between the Registrant and Metropolitan Life Insurance
Company dated March 21, 1990. (Included as Exhibit 19 to Registrants
Quarterly Report on Form 10-Q for the quarter ended March 31, 1990, File
No. 0-14706, previously filed with the Commission and incorporated
herein by this reference.)                                                                    
|     |  |                                                                                                                                                                                                                                                                                                                                                                                       
|4.3  |  | Indenture dated December 11, 2001 between the Registrant and U.S.
Bank, N.A., as trustee, relating to the Registrants 8-7/8% Senior
Subordinated Notes due 2011. (Included as Exhibit 4.3 to Registrants
Annual Report on Form 10-K for the fiscal year ended September 29, 2001,
File No. 0-14706, previously filed with the Commission and incorporated
herein by this reference.)
|     |  |                                                                                                                                                                                                                                                                                                                                                                                       
|4.4  |  | Form of the Registrants 8-7/8% Senior Subordinated Note due 2011.
(Included as Exhibit 4.4 to Registrants Annual Report on Form 10-K for
the fiscal year ended September 29, 2001, File No. 0-14706, previously
filed with the Commission and incorporated herein by this reference.)                                                                                               
|     |  |                                                                                                                                                                                                                                                                                                                                                                                       
|10.1 |  | Amended and Restated Ingles Markets, Incorporated 1987 Employee
Incentive Stock Option Plan. (Included as Exhibit 10.1 to Registrants
Annual Report on Form 10-K for the fiscal year ended September 30, 1995,
File No. 0-14706, previously filed with the Commission and incorporated
herein by this reference.)                                                                    
|     |  |                                                                                                                                                                                                                                                                                                                                                                                       
|     |  | (Management contract or compensatory plan or arrangement required to be
filed as an exhibit to this report on Form 10-K pursuant to Item 15(c)
of Form 10-K.)                                                                                                                                                                                                                         
|     |  |                                                                                                                                                                                                                                                                                                                                                                                       
|10.2 |  | Ingles Markets, Incorporated Investment/Profit Sharing Plan and Trust
as amended through June 30, 1995, along with first, second and third
amendments thereto. (Included as Exhibit 4.3 to Registrants
Registration Statement on Form S-8 filed on March 16, 1999, File No.
333-74459, previously filed with the Commission and incorporated herein
by this reference.)              
|     |  |                                                                                                                                                                                                                                                                                                                                                                                       
|     |  | (Management contract or compensatory plan or arrangement required to be
filed as an exhibit to this report on Form 10-K pursuant to Item 15(c)
of Form 10-K.)                                                                                                                                                                                                                         
|     |  |                                                                                                                                                                                                                                                                                                                                                                                       
|10.3 |  | Fourth Amendment to the Ingles Markets, Incorporated
Investment/Profit Sharing Plan effective September 14, 1999. (Included
as Exhibit 10.3 to Registrants Annual Report on form 10-K for the
fiscal year ended September 30, 2000, File No. 0-14706 previously filed
with the Commission and incorporated herein by this reference.)                                                
|     |  |                                                                                                                                                                                                                                                                                                                                                                                       
|     |  | (Management contract or compensatory plan or arrangement required to be
filed as an exhibit to this report on Form 10-K pursuant to Item 15(c)
of Form 10-K.)                                                                                                                                                                                                                         

20



---



##### 



|      |  |                                                                                                                                                                                                                                                                                                                                     
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.4  |  | Fifth Amendment to the Ingles Markets, Incorporated Investment/Profit
Sharing Plan effective March 6, 2000. (Included as Exhibit 10.4 to
Registrants Annual Report on form 10-K for the fiscal year ended
September 30, 2000, File No. 0-14706 previously filed with the
Commission and incorporated herein by this reference.)    
|      |  |                                                                                                                                                                                                                                                                                                                                     
|      |  | (Management contract or compensatory plan or arrangement required to be
filed as an exhibit to this report on Form 10-K pursuant to Item 15(c)
of Form 10-K.)                                                                                                                                                                       
|      |  |                                                                                                                                                                                                                                                                                                                                     
|10.5  |  | Sixth Amendment to the Ingles Markets, Incorporated Investment/Profit
Sharing Plan effective August 29, 2000. (Included as Exhibit 10.5 to
Registrants Annual Report on form 10-K for the fiscal year ended
September 30, 2000, File No. 0-14706 previously filed with the
Commission and incorporated herein by this reference.)  
|      |  |                                                                                                                                                                                                                                                                                                                                     
|      |  | (Management contract or compensatory plan or arrangement required to be
filed as an exhibit to this report on Form 10-K pursuant to Item 15(c)
of Form 10-K.)                                                                                                                                                                       
|      |  |                                                                                                                                                                                                                                                                                                                                     
|10.6  |  | Seventh Amendment to the Ingles Markets, Incorporated
Investment/Profit Sharing Plan effective January 1, 2001. (Included as
Exhibit 10.6 to Registrants Annual Report on Form 10-K for the fiscal
year ended September 29, 2001, File No. 0-14706 previously filed with
the Commission and incorporated herein by this reference.)
|      |  |                                                                                                                                                                                                                                                                                                                                     
|      |  | (Management contract or compensatory plan or arrangement required to be
filed as an exhibit to this report on Form 10-K pursuant to Item 15(c)
of Form 10-K)                                                                                                                                                                        
|      |  |                                                                                                                                                                                                                                                                                                                                     
|10.7  |  | Eighth Amendment to the Ingles Markets, Incorporated
Investment/Profit Sharing Plan effective May 21, 2001. (Included as
Exhibit 10.7 to Registrants Annual Report on Form 10-K for the fiscal
year ended September 29, 2001, File No. 0-14706 previously filed with
the Commission and incorporated herein by this reference.)    
|      |  |                                                                                                                                                                                                                                                                                                                                     
|      |  | (Management contract or compensatory plan or arrangement required to be
filed as an exhibit to this report on Form 10-K pursuant to Item 15(c)
of Form 10-K)                                                                                                                                                                        
|      |  |                                                                                                                                                                                                                                                                                                                                     
|10.8  |  | Ninth Amendment to the Ingles Markets, Incorporated Investment/Profit
Sharing Plan effective October 1, 2001. (Included as Exhibit 10.8 to
Registrants Annual Report on Form 10-K for the fiscal year ended
September 29, 2001, File No. 0-14706 previously filed with the
Commission and incorporated herein by this reference.)  
|      |  |                                                                                                                                                                                                                                                                                                                                     
|      |  | (Management contract or compensatory plan or arrangement required to be
filed as an exhibit to this report on Form 10-K pursuant to Item 15(c)
of Form 10-K)                                                                                                                                                                        
|      |  |                                                                                                                                                                                                                                                                                                                                     
|10.9  |  | Amended and Restated Ingles Markets, Incorporated 1991 Nonqualified
Stock Option Plan. (Included as Exhibit 10.4 to Registrants Annual
Report on Form 10-K for the fiscal year ended September 30, 1995, File
No. 0-14706, previously filed with the Commission and incorporated
herein by this reference.)                        
|      |  |                                                                                                                                                                                                                                                                                                                                     
|      |  | (Management contract or compensatory plan or arrangement required to be
filed as an exhibit to this report on Form 10-K pursuant to Item 15(c)
of Form 10-K.)                                                                                                                                                                       
|      |  |                                                                                                                                                                                                                                                                                                                                     
|10.10 |  | Amended and Restated 1997 Nonqualified Stock Option Plan. (Included as Appendix A to
Registrants Proxy Statement for the Annual Meeting of Stockholders held
on February 12, 2002, File No. 0-14706, previously filed with the
Commission and incorporated herein by this reference.)                                              
|      |  |                                                                                                                                                                                                                                                                                                                                     
|      |  | (Management contract or compensatory plan or arrangement required to be
filed as an exhibit to this report on Form 10-K pursuant to Item 15(c)
of Form 10-K.)                                                                                                                                                                       

21



---



##### 



|      |  |                                                                                                                                                              
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.11 |  | Amended and Restated Ingles Markets, Incorporated Investment/Profit
Sharing Plan effective September 29, 2002.                                               
|      |  |                                                                                                                                                              
|      |  | (Management contract or compensatory plan or arrangement required to be
filed as an exhibit to this report on Form 10-K pursuant to Item 15(c)
of Form 10-K.)
|      |  |                                                                                                                                                              
|21    |  | Subsidiaries of the Registrant.                                                                                                                              
|      |  |                                                                                                                                                              
|23    |  | Consent of Ernst & Young LLP, Independent Auditors.                                                                                                          
|      |  |                                                                                                                                                              
|99.1  |  | Certification Pursuant to 18 U.S.C. Section 1350                                                                                                             
|      |  |                                                                                                                                                              
|99.2  |  | Certification Pursuant to 18 U.S.C. Section 1350                                                                                                             



---

|(b) |  | Reports on Form 8-K. The Company filed a Form 8-K on August
13, 2002 in which it submitted to the Securities and Exchange
Commission the Statements under Oath of Principal Executive Officer
and Principal Financial Officer in accordance with the Commissions
June 27, 2002 Order requiring the filing of sworn statements pursuant
to Section 21(a)(1) of the Securities and Exchange Act of 1934.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(c) |  | Exhibits  The response to this portion of Item 15 is submitted
in the response to Item 15(a)(3) of this report.                                                                                                                                                                                                                                                                                       
|   
|(d) |  | Financial Statement Schedules  The response to this portion of
Item 15 is submitted in the response to Item 15(a)(2) of this report.                                                                                                                                                                                                                                                                  

22



---



##### 



Report of Ernst & Young LLP, Independent Auditor

Stockholders and Board of Directors
Ingles Markets, Incorporated

We have audited the accompanying consolidated balance sheets of Ingles
Markets, Incorporated and subsidiaries as of September 28, 2002 and September
29, 2001, and the related consolidated statements of income, stockholders
equity, and cash flows for each of the three years in the period ended
September 28, 2002. Our audits also included the financial statement
schedule listed in the Index at Item 15(a). These financial statements and
schedule are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Ingles Markets,
Incorporated and subsidiaries at September 28, 2002 and September 29, 2001,
and the consolidated results of their operations and their cash flows for
each of the three years in the period ended September 28, 2002, in conformity
with accounting principles generally accepted in the United States. Also, in
our opinion, the related financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.

| |  |                                                                   
| |  | ------------------------------------------------------------------
| |  | /s/ ERNST & YOUNG LLP
Greenville, South Carolina
November 18, 2002

23



---



##### 



INGLES MARKETS, INCORPORATED AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
     SEPTEMBER 28, 2002 AND SEPTEMBER 29, 2001

|                        |                                                                                           |      |               |               |  |   |             |               | 
|----------------------- | ----------------------------------------------------------------------------------------- | ---- | ------------- | ------------- |  | - | ----------- | ------------- | 
|ASSETS                  |                                                                                           | 2002 |               | 2001         
|                        |                                                                                           |      |               |              
|CURRENT ASSETS:         |                                                                                           |      |               |               |  |   |             |              
|                        | Cash                                                                                      |      | $             | 46,900,305    |  |   | $           | 12,434,897    | 
|                        | Receivables (less allowance for doubtful accounts
of $479,113 - 2002 and $339,938 - 2001) |      |               | 34,822,934    |  |   |             | 32,466,072    | 
|                        | Inventories                                                                               |      |               | 190,399,350   |  |   |             | 185,359,164   | 
|                        | Other                                                                                     |      |               | 5,706,754     |  |   |             | 3,790,109     | 
|                        |                                                                                           |      |               |               |  |   |             |              
|                        | Total current assets                                                                      |      |               | 277,829,343   |  |   |             | 234,050,242   | 
|                       
|PROPERTY AND EQUIPMENT: |                                                                                           |      |               |               |  |   |             |              
|                        | Land                                                                                      |      |               | 183,793,068   |  |   |             | 182,405,593   | 
|                        | Construction in progress                                                                  |      |               | 13,579,844    |  |   |             | 9,066,370     | 
|                        | Buildings                                                                                 |      |               | 527,463,561   |  |   |             | 518,095,679   | 
|                        | Store, office and warehouse equipment                                                     |      |               | 371,500,649   |  |   |             | 344,699,338   | 
|                        | Transportation equipment                                                                  |      |               | 16,477,978    |  |   |             | 15,070,624    | 
|                        | Property under capital leases                                                             |      |               | 731,084       |  |   |             | 731,084       | 
|                        | Leasehold improvements                                                                    |      |               | 42,607,772    |  |   |             | 42,555,331    | 
|                        |                                                                                           |      |               |               |  |   |             |              
|                        | Total                                                                                     |      |               | 1,156,153,956 |  |   |             | 1,112,624,019 | 
|                        | Less accumulated depreciation and amortization                                            |      |               | 432,934,408   |  |   |             | 388,180,605   | 
|                        |                                                                                           |      |               |               |  |   |             |              
|                        | Property and equipment  net                                                              |      |               | 723,219,548   |  |   |             | 724,443,414   | 
|                       
|OTHER ASSETS            |                                                                                           |      | 13,342,315    |               |  |   | 4,307,374   |              
|                        |                                                                                           |      |               |               |  |   |             |              
|TOTAL ASSETS            |                                                                                           | $    | 1,014,391,206 |               |  | $ | 962,801,030 |              
|                        |                                                                                           |      |               |               |  |   |             |              

See notes to consolidated financial statements.

24



---



##### 



INGLES MARKETS, INCORPORATED AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
     SEPTEMBER 28, 2002 AND SEPTEMBER 29, 2001

|                                           |                                                                                       |                                                                                                                                      |               |             |         |   |             |             |         | 
|------------------------------------------ | ------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------ | ------------- | ----------- | ------- | - | ----------- | ----------- | ------- | 
|LIABILITIES AND STOCKHOLDERS' EQUITY       |                                                                                       | 2002                                                                                                                                 |               | 2001       
|                                           |                                                                                       |                                                                                                                                      |               |            
|CURRENT LIABILITIES:                       |                                                                                       |                                                                                                                                      |               |             |         |   |             |            
|                                           | Short-term loans and current portion of long-term debt                                |                                                                                                                                      | $             | 47,307,046  |         |   | $           | 60,851,887  |        
|                                           | Accounts payable, accrued expenses and current portion
of other long-term liabilities |                                                                                                                                      |               | 139,123,085 |         |   |             | 135,745,897 |        
|                                           |                                                                                       |                                                                                                                                      |               |             |         |   |             |            
|                                           | Total current liabilities                                                             |                                                                                                                                      |               | 186,430,131 |         |   |             | 196,597,784 |        
|                                          
|DEFERRED INCOME TAXES                      |                                                                                       |                                                                                                                                      | 36,914,578    |             |         |   | 37,064,578  |            
|                                          
|LONG-TERM DEBT                             |                                                                                       |                                                                                                                                      | 549,324,487   |             |         |   | 488,693,496 |            
|                                          
|OTHER LONG-TERM LIABILITIES                |                                                                                       |                                                                                                                                      | 3,163,162     |             |         |   | 3,944,960   |            
|                                           |                                                                                       |                                                                                                                                      |               |             |         |   |             |            
|Total liabilities                          |                                                                                       |                                                                                                                                      | 775,832,358   |             |         |   | 726,300,818 |            
|                                           |                                                                                       |                                                                                                                                      |               |             |         |   |             |            
|STOCKHOLDERS EQUITY:                      |                                                                                       |                                                                                                                                      |               |             |         |   |             |            
|                                           | Preferred stock, $.05 par value;
10,000,000 shares authorized; no shares issued       |                                                                                                                                      |               |            |         |   |             |            |        
|                                           | Common stocks:                                                                        |                                                                                                                                      |               |             |         |   |             |             |        
|                                           |                                                                                       | Class A, $.05 par value; 150,000,000 shares
authorized; issued and outstanding, 10,189,807
shares in 2002, 10,005,107 shares in 2001 |               |             | 509,490 |   |             |             | 500,255 | 
|                                           |                                                                                       | Class B, $.05 par value; 100,000,000 shares
authorized; issued and outstanding, 12,597,932
shares in 2002, 12,634,432 shares in 2001 |               |             | 629,897 |   |             |             | 631,722 | 
|                                           | Paid-in capital in excess of par value                                                |                                                                                                                                      |               | 100,148,857 |         |   |             | 98,595,411  |        
|                                           | Retained earnings                                                                     |                                                                                                                                      |               | 137,270,604 |         |   |             | 136,772,824 |        
|                                           |                                                                                       |                                                                                                                                      |               |             |         |   |             |            
|                                           | Total stockholders equity                                                            |                                                                                                                                      |               | 238,558,848 |         |   |             | 236,500,212 |        
|                                           |                                                                                       |                                                                                                                                      |               |             |         |   |             |            
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |                                                                                       | $                                                                                                                                    | 1,014,391,206 |             |         | $ | 962,801,030 |            
|                                           |                                                                                       |                                                                                                                                      |               |             |         |   |             |            

See notes to consolidated financial statements.

25



---



##### 



INGLES MARKETS, INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME
     FISCAL YEARS ENDED SEPTEMBER 28, 2002,
          SEPTEMBER 29, 2001 AND SEPTEMBER 30, 2000

|                                                                                 |                                                             |   |               |      |      |   |               |     |  |   |               |     | 
|-------------------------------------------------------------------------------- | ----------------------------------------------------------- | - | ------------- | ---- | ---- | - | ------------- | --- |  | - | ------------- | --- | 
|                                                                                 |                                                             |   | 2002          |      | 2001 |   | 2000         
|                                                                                 |                                                             |   |               |      |      |   |              
|Net sales                                                                        |                                                             | $ | 1,960,461,855 |      |      | $ | 1,953,440,173 |     |  | $ | 1,916,200,153 |    
|Cost of goods sold                                                               |                                                             |   | 1,439,736,374 |      |      |   | 1,441,883,795 |     |  |   | 1,425,286,574 |    
|                                                                                 |                                                             |   |               |      |      |   |               |     |  |   |               |    
|Gross profit                                                                     |                                                             |   | 520,725,481   |      |      |   | 511,556,378   |     |  |   | 490,913,579   |    
|Operating and administrative expenses                                            |                                                             |   | 460,599,333   |      |      |   | 454,646,606   |     |  |   | 432,630,797   |    
|Rental income, net                                                               |                                                             |   | 10,354,582    |      |      |   | 10,302,158    |     |  |   | 10,149,373    |    
|                                                                                 |                                                             |   |               |      |      |   |               |     |  |   |               |    
|Income from operations                                                           |                                                             |   | 70,480,730    |      |      |   | 67,211,930    |     |  |   | 68,432,155    |    
|Other income, net                                                                |                                                             |   | 5,054,156     |      |      |   | 3,890,721     |     |  |   | 6,985,223     |    
|                                                                                 |                                                             |   |               |      |      |   |               |     |  |   |               |    
|Income before interest, income taxes and
extraordinary item                      |                                                             |   | 75,534,886    |      |      |   | 71,102,651    |     |  |   | 75,417,378    |    
|Interest expense                                                                 |                                                             |   | 51,540,327    |      |      |   | 42,902,630    |     |  |   | 41,226,092    |    
|                                                                                 |                                                             |   |               |      |      |   |               |     |  |   |               |    
|Income before income taxes and
extraordinary item                                |                                                             |   | 23,994,559    |      |      |   | 28,200,021    |     |  |   | 34,191,286    |    
|                                                                                 |                                                             |   |               |      |      |   |               |     |  |   |               |    
|Income taxes:                                                                    |                                                             |   |               |      |      |   |               |     |  |   |               |    
|Current                                                                          |                                                             |   | 9,600,000     |      |      |   | 4,950,000     |     |  |   | 8,400,000     |    
|Deferred                                                                         |                                                             |   | (900,000      | )    |      |   | 5,400,000     |     |  |   | 4,700,000     |    
|                                                                                 |                                                             |   |               |      |      |   |               |     |  |   |               |    
|                                                                                 |                                                             |   | 8,700,000     |      |      |   | 10,350,000    |     |  |   | 13,100,000    |    
|                                                                                 |                                                             |   |               |      |      |   |               |     |  |   |               |    
|Income before extraordinary item                                                 |                                                             |   | 15,294,559    |      |      |   | 17,850,021    |     |  |   | 21,091,286    |    
|Extraordinary item-early extinguishment
of debt (net of tax benefit of $350,000) |                                                             |   | (561,660      | )    |      |   |              |     |  |   |              |    
|                                                                                 |                                                             |   |               |      |      |   |               |     |  |   |               |    
|Net income                                                                       |                                                             | $ | 14,732,899    |      |      | $ | 17,850,021    |     |  | $ | 21,091,286    |    
|                                                                                 |                                                             |   |               |      |      |   |               |     |  |   |               |    
|Per-share amounts:                                                               |                                                             |   |               |      |      |   |               |     |  |   |               |    
|                                                                                 | Basic earnings per common share before
extraordinary item   |   | $             | .67  |      |   | $             | .79 |  |   | $             | .93 | 
|                                                                                 | Extraordinary item-early extinguishment
of debt             |   |               | (.02 | )    |   |               |    |  |   |               |    | 
|                                                                                 |                                                             |   |               |      |      |   |               |     |  |   |               |    
|                                                                                 | Basic earnings per common share                             |   | $             | .65  |      |   | $             | .79 |  |   | $             | .93 | 
|                                                                                 |                                                             |   |               |      |      |   |               |     |  |   |               |    
|                                                                                 | Diluted earnings per common share
before extraordinary item |   | $             | .66  |      |   | $             | .79 |  |   | $             | .93 | 
|                                                                                 | Extraordinary item-early extinguishment
of debt             |   |               | (.02 | )    |   |               |    |  |   |               |    | 
|                                                                                 |                                                             |   |               |      |      |   |               |     |  |   |               |    
|                                                                                 | Diluted earnings per common share                           |   | $             | .64  |      |   | $             | .79 |  |   | $             | .93 | 
|                                                                                 |                                                             |   |               |      |      |   |               |     |  |   |               |    
|Cash dividends per common share:                                                 |                                                             |   |               |      |      |   |               |     |  |   |               |    
|                                                                                 | Class A                                                     |   | $             | .66  |      |   | $             | .66 |  |   | $             | .66 | 
|                                                                                 |                                                             |   |               |      |      |   |               |     |  |   |               |    
|                                                                                 | Class B                                                     |   | $             | .60  |      |   | $             | .60 |  |   | $             | .60 | 
|                                                                                 |                                                             |   |               |      |      |   |               |     |  |   |               |    

See notes to consolidated financial statements.

26



---



##### 



INGLES MARKETS, INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
FISCAL YEARS ENDED SEPTEMBER 28, 2002,
     SEPTEMBER 29, 2001 AND SEPTEMBER 30, 2000

|                            |  |              |            |              |  |            |         |          |  |           |            |          |  |       |         |   |  |   |             |  |  |   |             |   |  |   |             |  
|--------------------------- |  | ------------ | ---------- | ------------ |  | ---------- | ------- | -------- |  | --------- | ---------- | -------- |  | ----- | ------- | - |  | - | ----------- |  |  | - | ----------- | - |  | - | ----------- | -
|                            |  | CLASS A      |            | CLASS B      |  | PAID-IN    |         |          |  |           |            |          |  |      
|                            |  | COMMON STOCK |            | COMMON STOCK |  | CAPITAL IN |         |          |  |           |            |          |  |      
|                            |  |              |            |              |  | EXCESS OF  |         | RETAINED |  |           |            |         
|                            |  | SHARES       |            | AMOUNT       |  | SHARES     |         | AMOUNT   |  | PAR VALUE |            | EARNINGS |  | TOTAL
|                            |  |              |            |              |  |            |         |          |  |           |            |          |  |      
|Balance,
September 25, 1999 |  |              | 9,786,491  |              |  | $          | 489,324 |          |  |           | 12,691,248 |          |  | $     | 634,563 |   |  | $ | 96,898,633  |  |  | $ | 126,099,336 |   |  | $ | 224,121,856 |  
|Net income                  |  |              |           |              |  |            |        |          |  |           |           |          |  |       |        |   |  |   |            |  |  |   | 21,091,286  |   |  |   | 21,091,286  |  
|Cash dividends              |  |              |           |              |  |            |        |          |  |           |           |          |  |       |        |   |  |   |            |  |  |   | (14,124,892 | ) |  |   | (14,124,892 | )
|Exercise of stock
options   |  |              | 100,000    |              |  |            | 5,000   |          |  |           |           |          |  |       |        |   |  |   | 1,045,000   |  |  |   |            |   |  |   | 1,050,000   |  
|Common stock
conversions    |  |              | 46,123     |              |  |            | 2,307   |          |  |           | (46,123    | )        |  |       | (2,307  | ) |  |   |            |  |  |   |            |   |  |   |            |  
|                            |  |              |            |              |  |            |         |          |  |           |            |          |  |       |         |   |  |   |             |  |  |   |             |   |  |   |             |  
|Balance,
September 30, 2000 |  |              | 9,932,614  |              |  |            | 496,631 |          |  |           | 12,645,125 |          |  |       | 632,256 |   |  |   | 97,943,633  |  |  |   | 133,065,730 |   |  |   | 232,138,250 |  
|Net income                  |  |              |           |              |  |            |        |          |  |           |           |          |  |       |        |   |  |   |            |  |  |   | 17,850,021  |   |  |   | 17,850,021  |  
|Cash dividends              |  |              |           |              |  |            |        |          |  |           |           |          |  |       |        |   |  |   |            |  |  |   | (14,142,927 | ) |  |   | (14,142,927 | )
|Exercise of stock
options   |  |              | 61,800     |              |  |            | 3,090   |          |  |           |           |          |  |       |        |   |  |   | 651,778     |  |  |   |            |   |  |   | 654,868     |  
|Common stock
conversions    |  |              | 10,693     |              |  |            | 534     |          |  |           | (10,693    | )        |  |       | (534    | ) |  |   |            |  |  |   |            |   |  |   |            |  
|                            |  |              |            |              |  |            |         |          |  |           |            |          |  |       |         |   |  |   |             |  |  |   |             |   |  |   |             |  
|Balance,
September 29, 2001 |  |              | 10,005,107 |              |  |            | 500,255 |          |  |           | 12,634,432 |          |  |       | 631,722 |   |  |   | 98,595,411  |  |  |   | 136,772,824 |   |  |   | 236,500,212 |  
|Net income                  |  |              |           |              |  |            |        |          |  |           |           |          |  |       |        |   |  |   |            |  |  |   | 14,732,899  |   |  |   | 14,732,899  |  
|Cash dividends              |  |              |           |              |  |            |        |          |  |           |           |          |  |       |        |   |  |   |            |  |  |   | (14,235,119 | ) |  |   | (14,235,119 | )
|Exercise of stock
options   |  |              | 148,200    |              |  |            | 7,410   |          |  |           |           |          |  |       |        |   |  |   | 1,553,446   |  |  |   |            |   |  |   | 1,560,856   |  
|Common stock
conversions    |  |              | 36,500     |              |  |            | 1,825   |          |  |           | (36,500    | )        |  |       | (1,825  | ) |  |   |            |  |  |   |            |   |  |   |            |  
|                            |  |              |            |              |  |            |         |          |  |           |            |          |  |       |         |   |  |   |             |  |  |   |             |   |  |   |             |  
|Balance,
September 28, 2002 |  |              | 10,189,807 |              |  | $          | 509,490 |          |  |           | 12,597,932 |          |  | $     | 629,897 |   |  | $ | 100,148,857 |  |  | $ | 137,270,604 |   |  | $ | 238,558,848 |  
|                            |  |              |            |              |  |            |         |          |  |           |            |          |  |       |         |   |  |   |             |  |  |   |             |   |  |   |             |  

See notes to consolidated financial statements.

27



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##### 



INGLES MARKETS, INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
FISCAL YEARS ENDED SEPTEMBER 28, 2002,
     SEPTEMBER 29, 2001 AND SEPTEMBER 30, 2000

|                                                                                  |                                    |                                                                                  |              |            |            |      |             |            |            |   |              |           |             |  
|--------------------------------------------------------------------------------- | ---------------------------------- | -------------------------------------------------------------------------------- | ------------ | ---------- | ---------- | ---- | ----------- | ---------- | ---------- | - | ------------ | --------- | ----------- | -
|                                                                                  |                                    |                                                                                  |              | 2002       |            | 2001 |             | 2000      
|                                                                                  |                                    |                                                                                  |              |            |            |      |             |           
|Cash Flows From Operating Activities:                                             |                                    |                                                                                  |              |            |            |      |             |            |            |   |              |          
|Net income                                                                        |                                    | $                                                                                | 14,732,899   |            |            | $    | 17,850,021  |            |            | $ | 21,091,286   |          
|Adjustments to reconcile net income to net cash provided
by operating activities: |                                    |                                                                                  |              |            |            |      |             |            |            |   |              |          
|                                                                                  |                                    | Depreciation and amortization expense                                            |              |            | 48,311,990 |      |             |            | 45,266,368 |   |              |           | 43,532,429  |  
|                                                                                  |                                    | Extraordinary item-early extinguishment of debt (net of tax
benefit of $350,000) |              |            | 561,660    |      |             |            |           |   |              |           |            |  
|                                                                                  |                                    | Amortization of deferred gain on sale/leaseback                                  |              |            | (847,182   | )    |             |            | (1,212,236 | ) |              |           | (1,017,227  | )
|                                                                                  |                                    | Gains on disposals of property and equipment                                     |              |            | (1,457,505 | )    |             |            | (1,410,593 | ) |              |           | (2,682,262  | )
|                                                                                  |                                    | Receipt of advance payments on purchases contracts                               |              |            | 3,556,871  |      |             |            | 1,375,000  |   |              |           | 3,644,282   |  
|                                                                                  |                                    | Recognition of advance payments on purchases contracts                           |              |            | (3,515,093 | )    |             |            | (3,675,000 | ) |              |           | (4,578,947  | )
|                                                                                  |                                    | Deferred income taxes                                                            |              |            | (900,000   | )    |             |            | 5,400,000  |   |              |           | 4,700,000   |  
|                                                                                  | (Increase) decrease in receivables |                                                                                  |              | (3,898,862 | )          |      |             | (9,646,542 | )          |   |              | 5,728,975 |            
|                                                                                  |                                    | Increase in inventory                                                            |              |            | (5,040,186 | )    |             |            | (5,962,534 | ) |              |           | (12,385,586 | )
|                                                                                  |                                    | Increase in other assets                                                         |              |            | (998,108   | )    |             |            | (2,139,797 | ) |              |           | (2,424,544  | )
|                                                                                  |                                    | Increase (decrease) in accounts payable and accrued
expenses                     |              |            | 1,505,266  |      |             |            | 1,814,849  |   |              |           | (13,329,158 | )
|                                                                                  |                                    |                                                                                  |              |            |            |      |             |            |            |   |              |          
|Net Cash Provided By Operating Activities                                         |                                    |                                                                                  | 52,011,750   |            |            |      | 47,659,536  |            |            |   | 42,279,248   |          
|                                                                                  |                                    |                                                                                  |              |            |            |      |             |            |            |   |              |          
|Cash Flows From Investing Activities:                                             |                                    |                                                                                  |              |            |            |      |             |            |            |   |              |          
|Proceeds from sales of property and equipment                                     |                                    |                                                                                  | 6,143,595    |            |            |      | 5,052,264   |            |            |   | 6,898,629    |          
|Capital expenditures                                                              |                                    |                                                                                  | (49,713,386  | )          |            |      | (73,193,907 | )          |            |   | (102,534,798 | )        
|                                                                                  |                                    |                                                                                  |              |            |            |      |             |            |            |   |              |          
|Net Cash Used By Investing Activities                                             |                                    |                                                                                  | (43,569,791  | )          |            |      | (68,141,643 | )          |            |   | (95,636,169  | )        
|                                                                                  |                                    |                                                                                  |              |            |            |      |             |            |            |   |              |          
|Cash Flows From Financing Activities:                                             |                                    |                                                                                  |              |            |            |      |             |            |            |   |              |          
|Proceeds from issuance of long-term debt                                          |                                    |                                                                                  | 272,280,684  |            |            |      | 88,511,287  |            |            |   | 138,380,068  |          
|Debt issuance costs                                                               |                                    |                                                                                  | (9,706,696   | )          |            |      | (233,271    | )          |            |   |             |          
|Proceeds from sale/leaseback transactions                                         |                                    |                                                                                  | 1,318,257    |            |            |      | 1,554,124   |            |            |   | 13,005,294   |          
|Payments on short-term borrowings, net                                            |                                    |                                                                                  | (10,229,000  | )          |            |      |            |            |            |   | (10,000,000  | )        
|Principal payments on long-term debt                                              |                                    |                                                                                  | (214,965,533 | )          |            |      | (54,603,090 | )          |            |   | (77,737,287  | )        
|Proceeds from exercise of stock options                                           |                                    |                                                                                  | 1,560,856    |            |            |      | 654,868     |            |            |   | 1,050,000    |          
|Dividends paid                                                                    |                                    |                                                                                  | (14,235,119  | )          |            |      | (14,142,927 | )          |            |   | (14,124,892  | )        
|                                                                                  |                                    |                                                                                  |              |            |            |      |             |            |            |   |              |          
|Net Cash Provided By Financing Activities                                         |                                    |                                                                                  | 26,023,449   |            |            |      | 21,740,991  |            |            |   | 50,573,183   |          
|                                                                                  |                                    |                                                                                  |              |            |            |      |             |            |            |   |              |          
|Net Increase (Decrease) in Cash                                                   |                                    |                                                                                  | 34,465,408   |            |            |      | 1,258,884   |            |            |   | (2,783,738   | )        
|Cash at Beginning of Year                                                         |                                    |                                                                                  | 12,434,897   |            |            |      | 11,176,013  |            |            |   | 13,959,751   |          
|                                                                                  |                                    |                                                                                  |              |            |            |      |             |            |            |   |              |          
|Cash at End of Year                                                               |                                    | $                                                                                | 46,900,305   |            |            | $    | 12,434,897  |            |            | $ | 11,176,013   |          
|                                                                                  |                                    |                                                                                  |              |            |            |      |             |            |            |   |              |          

See notes to consolidated financial statements.

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Ingles Markets, Incorporated and SubsidiariesNotes To Consolidated Financial Statements
Fiscal years ended September 28, 2002, September 29, 2001
     and September 30, 2000

1. Summary of Significant Accounting Policies

Principles of Consolidation The consolidated financial statements include
the accounts of Ingles Markets, Incorporated and its wholly-owned
subsidiaries, Sky King, Inc., Ingles Markets Investments, Inc., Milkco,
Inc., Shopping Center Financing, LLC, Shopping Center Financing II, LLC and
IMI Holdings, LLC (collectively, the Company). All significant
intercompany balances and transactions have been eliminated in
consolidation.

Fiscal Year The Companys fiscal year ends on the last Saturday in
September. Fiscal years 2002 and 2001 consisted of 52 weeks and fiscal year
2000 consisted of 53 weeks.

Cash Equivalents All highly liquid investments with a maturity of three
months or less when purchased are considered cash.

Financial Instruments The Company has short term investments and
certificates of deposit included in cash. The Companys policy is to invest
its excess cash either in money market accounts, reverse repurchase
agreements or in commercial paper. Money market accounts and commercial
paper are not secured; reverse repurchase agreements are secured by
government obligations. At September 28, 2002, the Company had $34.4
million invested in a money market account and no investments in commercial
paper or reverse repurchase agreements. Demand deposits, including the
money market account, of approximately $44.6 million in 23 banks exceed the
$100,000 insurance limit per bank.

Inventories Warehouse inventories are valued at the lower of average cost
or market. Store inventories are valued at FIFO using the retail method.

Property, Equipment and Depreciation Property and equipment are stated at
cost and depreciated over the estimated useful lives (principally 5 to 30
years) of the various classes of assets by the straight-line method.
Depreciation expense totaled $47.2 million, $44.8 million and $43.3 million
for fiscal years 2002, 2001 and 2000, respectively.

Self-Insurance The Company is self-insured for workers compensation and
group medical and dental benefits. Self-insurance reserves are established
based on claims filed and estimates of claims incurred but not reported.
The estimates are based on data provided by the respective claims
administrators. The Company is required in certain cases to obtain letters
of credit to support its self-insured status. At fiscal year end 2002, the
Companys self-insured liabilities were supported by $3.6 million of undrawn
letters of credit which expire between January 2003 and October 2003. The
Company carries casualty insurance only on those properties where it is
required to do so. The Company has elected to self-insure its other
properties.

Income Taxes The Company accounts for income taxes under FASB Statement
No. 109, Accounting for Income Taxes. Under this method, deferred tax
assets and liabilities are determined based on differences between financial
reporting and tax bases of assets and liabilities and are measured using the
currently enacted tax rates.

Pre-Opening Costs Costs associated with the opening of new stores are
expensed when incurred.

Reclassifications Certain amounts for 2001 and 2000 have been reclassified
for comparative purposes.

Per-Share Amounts Basic earnings per common share is computed by dividing
consolidated net income by the weighted average number of shares of common
stock outstanding during the period. Diluted earnings per common share
gives effect to dilutive stock options.

Advertising The Company expenses the costs of advertising as incurred.
Advertising and promotion expenses totaled $22.5 million, $23.1 million and
$23.9 million for fiscal years 2002, 2001 and 2000, respectively.

Use of Estimates The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Although these estimates are based on
managements knowledge of current events and actions it may undertake in the
future, they may ultimately differ from actual results.

29



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Ingles Markets, Incorporated and SubsidiariesNotes To Consolidated Financial Statements
Fiscal years ended September 28, 2002, September 29, 2001
     and September 30, 2000

Shipping and Handling Costs The cost of shipping and handling is charged to
expense as incurred and is included in operating and administrative expenses
in the Consolidated Statements of Income. The Company incurred
approximately $29.7 million, $31.5 million and $31.2 million of shipping and
handling costs during 2002, 2001 and 2000, respectively.

Revenue Recognition The Company recognizes revenues from grocery sales at
the point of sale to its customers and from fluid dairy at the point of
shipment to its customers.

New Accounting Pronouncements In June 2001, the Financial Accounting
Standards Board (FASB) issued Statements No. 141, Business Combinations
(FAS 141) and No. 142, Goodwill and Other Intangible Assets (FAS 142).
Under the new rules, goodwill and indefinite lived intangible assets are no
longer amortized but are reviewed annually for impairment. Separable
intangible assets that are not deemed to have an indefinite life will continue
to be amortized over their useful lives. The amortization provisions of FAS
142 apply to goodwill and intangible assets acquired after June 30, 2001.
With respect to goodwill and intangible assets acquired prior to July 1, 2001,
the Company applied the new accounting rules on September 30, 2001. The
adoption of FAS 141 and FAS 142 did not have any impact on the Companys
financial statements.

In August 2001, the FASB issued Statement No. 143 Accounting for Asset
Retirement Obligations that provides accounting guidance for the costs of
retiring long-lived assets and is effective for fiscal years beginning after
June 15, 2002. The Company does not believe the adoption of this statement
will have any impact on its financial statements.

In October 2001, the FASB issued Statement No. 144 Accounting for the
Impairment or Disposal of Long-Lived Assets (FAS 144). FAS 144 provides
accounting guidance for financial accounting and reporting for the impairment
or disposal of long-lived assets. The statement supercedes FASB Statement No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of (FAS 121). It also supercedes the accounting and
reporting provisions of APB Opinion No. 30 Reporting the Results of
Operations  Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions
related to the disposal of a segment of a business. FAS 144 is effective for
fiscal years beginning after December 15, 2001. The Company is currently
assessing the impact adopting this statement will have on its financial
statements.

In April 2002, the FASB issued Statement No. 145, Modifications to
Reporting of Extinguishments of Debt and Accounting for Certain Capital
Lease Modifications and Technical Corrections (FAS 145). FAS 145 will
require gains and losses on extinguishments of debt to be classified as
income or loss from continuing operations rather than as extraordinary items
as previously required under FASB Statement No. 4. Extraordinary treatment
will be required for certain extinguishments as provided in APB Opinion No.
30. FAS 145 also amends FASB Statement No. 13 to require certain
modifications to capital leases be treated as a sale-leaseback and modifies
the accounting for sub-leases when the original lessee remains a secondary
obligor (or guarantor). In addition, the FASB rescinded Statement No. 44
that addressed the accounting for intangible assets of motor carriers and
made numerous technical corrections. In fiscal 2003, the Company will
reclassify the losses on extinguishment of debt incurred during 2002 from an
extraordinary item to a reduction in income from operations.

30



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Ingles Markets, Incorporated and SubsidiariesNotes To Consolidated Financial Statements
Fiscal years ended September 28, 2002, September 29, 2001
     and September 30, 2000

2. Income Taxes

Deferred Income Tax Liabilities and Assets Significant components of the
Companys deferred tax liabilities and assets are as follows:

|                             |                                         |   |                                |            |      |            |            |            |  |            | 
|---------------------------- | --------------------------------------- | - | ------------------------------ | ---------- | ---- | ---------- | ---------- | ---------- |  | ---------- | 
|                             |                                         |   |                                |            | 2002 |            | 2001      
|                             |                                         |   |                                |            |      |            |           
|Deferred tax liabilities:    |                                         |   |                                |            |      |            |            |           
|                             | Fixed asset tax/book differences        |   | $                              | 40,363,000 |      |            | $          | 40,640,000 | 
|                             | Property tax method                     |   |                                | 895,000    |      |            |            | 826,000    | 
|                             | Inventory                               |   |                                | 598,000    |      |            |            | 598,000    | 
|                             |                                         |   |                                |            |      |            |            |           
|                             |                                         |   | Total deferred tax liabilities |            |      | 41,856,000 |            |            |  | 42,064,000 | 
|                             |                                         |   |                                |            |      |            |            |           
|Deferred tax assets:         |                                         |   |                                |            |      |            |            |           
|                             | Insurance reserves                      |   |                                | 2,176,000  |      |            |            | 2,468,000  | 
|                             | Advance payments on purchases contracts |   |                                | 1,467,000  |      |            |            | 442,000    | 
|                             | Vacation accrual                        |   |                                | 779,000    |      |            |            | 691,000    | 
|                             | Deferred gain on sale/leasebacks        |   |                                | 431,000    |      |            |            | 755,000    | 
|                             | Closed store accrual                    |   |                                | 1,477,000  |      |            |            | 1,183,000  | 
|                             | Other                                   |   |                                | 1,784,000  |      |            |            | 1,861,000  | 
|                             |                                         |   |                                |            |      |            |            |           
|                             |                                         |   | Total deferred tax assets      |            |      | 8,114,000  |            |            |  | 7,400,000  | 
|                             |                                         |   |                                |            |      |            |            |           
|Net deferred tax liabilities |                                         | $ | 33,742,000                     |            |      | $          | 34,664,000 |           
|                             |                                         |   |                                |            |      |            |            |           

Income Tax Expense Income tax expense differs from the amounts computed by
applying the statutory federal rates to income before income taxes. The
reasons for the differences are as follows:

|                                              |  |      |           |      |  |      |            |   |  |   |            | 
|--------------------------------------------- |  | ---- | --------- | ---- |  | ---- | ---------- | - |  | - | ---------- | 
|                                              |  | 2002 |           | 2001 |  | 2000
|                                              |  |      |           |      |  |     
|Federal tax at statutory rate                 |  | $    | 8,202,000 |      |  | $    | 9,870,000  |   |  | $ | 11,967,000 | 
|State income tax, net of federal tax benefits |  |      | 914,000   |      |  |      | 1,100,000  |   |  |   | 1,111,000  | 
|Other                                         |  |      | (416,000  | )    |  |      | (620,000   | ) |  |   | 22,000     | 
|                                              |  |      |           |      |  |      |            |   |  |   |            | 
|Total                                         |  | $    | 8,700,000 |      |  | $    | 10,350,000 |   |  | $ | 13,100,000 | 
|                                              |  |      |           |      |  |      |            |   |  |   |            | 

Current and deferred income tax expense is as follows:

|              |         |   |                |           |      |           |            |           |      |           |            |           |  |           | 
|------------- | ------- | - | -------------- | --------- | ---- | --------- | ---------- | --------- | ---- | --------- | ---------- | --------- |  | --------- | 
|              |         |   |                |           | 2002 |           | 2001       |           | 2000
|              |         |   |                |           |      |           |            |           |     
|Current:      |         |   |                |           |      |           |            |           |      |           |            |          
|              | Federal |   | $              | 8,600,000 |      |           | $          | 4,700,000 |      |           | $          | 7,700,000 | 
|              | State   |   |                | 1,000,000 |      |           |            | 250,000   |      |           |            | 700,000   | 
|              |         |   |                |           |      |           |            |           |      |           |            |          
|              |         |   | Total current  |           |      | 9,600,000 |            |           |      | 4,950,000 |            |           |  | 8,400,000 | 
|              |         |   |                |           |      |           |            |           |      |           |            |          
|Deferred:     |         |   |                |           |      |           |            |           |      |           |            |          
|              | Federal |   |                | (887,000  | )    |           |            | 4,630,000 |      |           |            | 4,030,000 | 
|              | State   |   |                | (13,000   | )    |           |            | 770,000   |      |           |            | 670,000   | 
|              |         |   |                |           |      |           |            |           |      |           |            |          
|              |         |   | Total deferred |           |      | (900,000  | )          |           |      | 5,400,000 |            |           |  | 4,700,000 | 
|              |         |   |                |           |      |           |            |           |      |           |            |          
|Total expense |         | $ | 8,700,000      |           |      | $         | 10,350,000 |           |      | $         | 13,100,000 |          
|              |         |   |                |           |      |           |            |           |      |           |            |          

Current deferred income tax benefits of $3.2 million and $2.4 million at
September 28, 2002 and September 29, 2001, respectively, included in other
current assets, result from timing differences arising from vacation pay, bad
debt and self-insurance reserves, and from capitalization of certain overhead
costs in inventory for tax purposes.

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Ingles Markets, Incorporated and SubsidiariesNotes To Consolidated Financial Statements
Fiscal years ended September 28, 2002, September 29, 2001
     and September 30, 2000

3. Property Held For Lease and Rental Income

At September 28, 2002, the Company owned and operated 76 shopping centers in
conjunction with its supermarket operations. The Company leases to others a
portion of its shopping center properties. The leases are non-cancelable
operating lease agreements for periods ranging up to 20 years. Substantially
all leases covering retail properties provide for one or more renewal periods
and for percentage rent based on gross sales of the lessee.

Rental income, net consists of the following:

|                                                  |  |       |            |      |            |      |            |      |            |   |            |   |            | 
|------------------------------------------------- |  | ----- | ---------- | ---- | ---------- | ---- | ---------- | ---- | ---------- | - | ---------- | - | ---------- | 
|                                                  |  |       |            | 2002 |            | 2001 |            | 2000
|                                                  |  |       |            |      |            |      |            |     
|Rents earned on owned and
subleased properties:   |  |       |            |      |            |      |            |      |            |   |            |  
|Base rentals including lease
termination payments |  | $     | 16,377,963 |      |            | $    | 15,187,616 |      |            | $ | 14,852,342 |  
|Contingent rentals                                |  |       | 548,692    |      |            |      | 1,348,902  |      |            |   | 1,034,630  |  
|                                                  |  |       |            |      |            |      |            |      |            |   |            |  
|                                                  |  | Total |            |      | 16,926,655 |      |            |      | 16,536,518 |   |            |   | 15,886,972 | 
|Depreciation on owned
properties leased to others |  |       | (5,026,679 | )    |            |      | (4,687,209 | )    |            |   | (4,117,337 | )
|Other shopping center expenses                    |  |       | (1,545,394 | )    |            |      | (1,547,151 | )    |            |   | (1,620,262 | )
|                                                  |  |       |            |      |            |      |            |      |            |   |            |  
|                                                  |  | Total |            | $    | 10,354,582 |      |            | $    | 10,302,158 |   |            | $ | 10,149,373 | 
|                                                  |  |       |            |      |            |      |            |      |            |   |            |  

Owned properties leased to others under operating leases by major classes are
summarized as follows:

|                               |       |   |               |             | 
|------------------------------ | ----- | - | ------------- | ----------- | 
|                               |       |   | September 28,
|                               |       |   | 2002         
|                               |       |   |              
|Land                           |       | $ | 37,786,431    |            
|Buildings                      |       |   | 139,022,778   |            
|                               |       |   |               |            
|                               | Total |   |               | 176,809,209 | 
|Less accumulated depreciation  |       |   | 51,844,553    |            
|                               |       |   |               |            
|Property leased to others, net |       | $ | 124,964,656   |            
|                               |       |   |               |            

The above amounts are included in the respective captions on the balance sheet
under the heading Property and Equipment.

The following is a schedule of minimum future rental income on non-cancelable
operating leases as of September 28, 2002:

|                                   |  |   |            | 
|---------------------------------- |  | - | ---------- | 
|Fiscal Year                        |  |   |            | 
|                                  
|2003                               |  | $ | 13,132,023 | 
|2004                               |  |   | 10,697,387 | 
|2005                               |  |   | 8,567,859  | 
|2006                               |  |   | 6,819,664  | 
|2007                               |  |   | 5,291,782  | 
|Thereafter                         |  |   | 29,926,435 | 
|                                   |  |   |            | 
|Total minimum future rental income |  | $ | 74,435,150 | 
|                                   |  |   |            | 

4. Leases and Rental Expense

The Company conducts part of its retail operations from leased facilities. The
initial terms of the leases expire at various times over the next 20 years.
The majority of the leases include one or more renewal options and provide that
the Company pay property taxes, utilities, repairs and certain other costs
incidental to occupation of the premises. Several leases contain clauses
calling for percentage rentals based upon gross sales of the supermarket
occupying the leased space. The Company also leases a portion of its equipment
under operating leases, including leases derived from sale/leaseback
transactions, with initial terms of three to five years.

Operating Leases Rent expense for all operating leases of $42.1 million,
$38.2 million and $31.4 million for fiscal years 2002, 2001 and 2000,
respectively, is included in operating and administrative expenses. Sub-leased
rental income of $1.6 million, $1.3 million and $0.9 million for fiscal years
2002, 2001 and 2000, respectively is included in rental income, net.

32



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##### 



Ingles Markets, Incorporated and SubsidiariesNotes To Consolidated Financial Statements
Fiscal years ended September 28, 2002, September 29, 2001
     
and September 30, 2000

The components of aggregate minimum rental commitments under non-cancelable
operating leases as of September 28, 2002 are as follows:

|                                        |  |            |             |           |  |            |           |     |  |   |             | 
|--------------------------------------- |  | ---------- | ----------- | --------- |  | ---------- | --------- | --- |  | - | ----------- | 
|                                        |  | Minimum    |             |           |  |            |           | Net
|                                        |  | Rental     |             | Sub-Lease |  | Rental    
|Fiscal Year                             |  | Commitment |             | Income    |  | Commitment
|                                        |  |            |             |           |  |           
|2003                                    |  | $          | 40,068,253  |           |  | $          | 1,597,679 |     |  | $ | 38,470,574  | 
|2004                                    |  |            | 25,766,813  |           |  |            | 1,487,891 |     |  |   | 24,278,922  | 
|2005                                    |  |            | 22,909,448  |           |  |            | 981,600   |     |  |   | 21,927,848  | 
|2006                                    |  |            | 17,147,325  |           |  |            | 660,000   |     |  |   | 16,487,325  | 
|2007                                    |  |            | 14,923,288  |           |  |            | 620,000   |     |  |   | 14,303,288  | 
|Thereafter                              |  |            | 93,264,509  |           |  |            | 1,695,000 |     |  |   | 91,569,509  | 
|                                        |  |            |             |           |  |            |           |     |  |   |             | 
|Total minimum future rental commitments |  | $          | 214,079,636 |           |  | $          | 7,042,170 |     |  | $ | 207,037,466 | 
|                                        |  |            |             |           |  |            |           |     |  |   |             | 

5. Accounts Payable, Accrued Expenses and Current Portion of Other Long-Term
Liabilities

Accounts payable, accrued expenses and current portion of other long-term
liabilities consist of the following:

|                                           |  |      |             |      |  |   |             | 
|------------------------------------------ |  | ---- | ----------- | ---- |  | - | ----------- | 
|                                           |  | 2002 |             | 2001
|                                           |  |      |             |     
|Accounts payable-trade                     |  | $    | 82,651,435  |      |  | $ | 85,468,997  | 
|Property, payroll, and other taxes payable |  |      | 12,362,475  |      |  |   | 13,035,074  | 
|Salaries, wages, and bonuses payable       |  |      | 11,985,095  |      |  |   | 11,994,229  | 
|Self-insurance reserves                    |  |      | 6,565,623   |      |  |   | 7,041,585   | 
|Interest                                   |  |      | 9,569,420   |      |  |   | 2,332,336   | 
|Other                                      |  |      | 15,989,037  |      |  |   | 15,873,676  | 
|                                           |  |      |             |      |  |   |             | 
|Total                                      |  | $    | 139,123,085 |      |  | $ | 135,745,897 | 
|                                           |  |      |             |      |  |   |             | 

Self-insurance reserves are established for workers compensation and
employee group medical and dental benefits based on claims filed and claims
incurred but not reported. The Company is insured for covered costs in
excess of $350,000 per occurrence for workers compensation and $175,000 per
covered person for medical care benefits for a policy year.

Employee insurance expense, including workers compensation and medical care
benefits, net of employee contributions, totaled $20.3 million, $19.0 million
and $16.5 million for 2002, 2001 and 2000, respectively.

6. Long-Term Debt and Short-Term Loans

Long-term debt and short-term loans are summarized as follows:

|                                          |  |                                                                                                          |             |      |             |      |             |   |             | 
|----------------------------------------- |  | -------------------------------------------------------------------------------------------------------- | ----------- | ---- | ----------- | ---- | ----------- | - | ----------- | 
|                                          |  |                                                                                                          |             | 2002 |             | 2001
|                                          |  |                                                                                                          |             |      |             |     
|Bonds payable:                            |  |                                                                                                          |             |      |             |      |             |  
|                                          |  | Senior subordinated debt, interest rate of 8.875%, maturing 2011                                         |             | $    | 249,750,000 |      |             | $ |            | 
|                                          |  | Unamortized original issue discount on senior subordinated debt                                          |             |      | (1,865,417  | )    |             |   |            | 
|Notes payable:                            |  |                                                                                                          |             |      |             |      |             |  
|                                          |  | Real estate and equipment maturing 2003-2017:                                                            |             |      |             |      |             |   |             | 
|                                          |  | Due to banks, weighted average interest rate of 7.90% for 2002
and 7.75% for 2001                        |             |      | 151,135,177 |      |             |   | 263,300,020 | 
|                                          |  | Due to other financial institutions, weighted average interest rate of
8.90% for 2002 and 8.75% for 2001 |             |      | 197,611,773 |      |             |   | 220,085,363 | 
|                                          |  | Other:                                                                                                   |             |      |             |      |             |   |             | 
|                                          |  | Weighted average interest rate of 4.88% for 2001                                                         |             |      |            |      |             |   | 61,024,000  | 
|                                          |  | Weighted average interest rate of 8.15% for 2001, secured by stock of
Milkco, Inc.                       |             |      |            |      |             |   | 5,136,000   | 
|                                          |  |                                                                                                          |             |      |             |      |             |  
|Total long-term debt and short-term loans |  |                                                                                                          | 596,631,533 |      |             |      | 549,545,383 |  
|Less current portion                      |  |                                                                                                          | 47,307,046  |      |             |      | 60,851,887  |  
|                                          |  |                                                                                                          |             |      |             |      |             |  
|Long-term debt, net of current portion    |  | $                                                                                                        | 549,324,487 |      |             | $    | 488,693,496 |  
|                                          |  |                                                                                                          |             |      |             |      |             |  

33



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##### 



Ingles Markets, Incorporated and SubsidiariesNotes To Consolidated Financial Statements
Fiscal years ended September 28, 2002, September 29, 2001
     and September 30, 2000

On December 11, 2001 the Company closed an offering of $250 million principal
amount of senior subordinated notes to mature in 2011. The notes bear an
annual interest rate of 8-7/8% and were issued at a discount to yield 9%.
After December 1, 2006 until December 1, 2009, the Company may redeem all or a
portion of the Notes at a declining premium rate of 104.438% to 101.369%.
After December 1, 2009 the Company may redeem the notes at 100% of the
principal amount. The Company incurred $0.6 million in costs, net of income
tax benefits of $0.4 million, in connection with the early retirement of $170.0
million of debt with a portion of the proceeds from the Notes.

In conjunction with the issuance of the notes, the Company renegotiated its
lines of credit, extending the maturity dates and increasing available lines of
credit from $130 million to $150 million. Of the $150 million of committed
lines of credit, $130 million matures in October 2004 and $20 million matured
in October 2002. At September 28, 2002, the Company had no balance drawn under
its lines of credit. The lines provide the Company with various interest rate
options, generally at rates less than prime.

At September 28, 2002, property and equipment with an undepreciated cost of
approximately $427 million was pledged as collateral for long-term debt.
Long-term debt and lines of credit agreements contain various restrictive
covenants requiring, among other things, minimum levels of net worth and
maintenance of certain financial ratios. One of the covenants has the effect
of restricting funds available for dividends to approximately $29.8 million,
based on tangible net worth at September 28 2002. As of September 28, 2002,
the Company is in compliance with these covenants.

Components of interest costs are as follows:

|                     |  |      |            |      |  |      |            |   |  |   |            |  
|-------------------- |  | ---- | ---------- | ---- |  | ---- | ---------- | - |  | - | ---------- | -
|                     |  | 2002 |            | 2001 |  | 2000
|                     |  |      |            |      |  |     
|Total interest costs |  | $    | 51,858,993 |      |  | $    | 44,838,488 |   |  | $ | 43,340,190 |  
|Interest capitalized |  |      | (318,666   | )    |  |      | (1,935,858 | ) |  |   | (2,114,098 | )
|                     |  |      |            |      |  |      |            |   |  |   |            |  
|Interest expense     |  | $    | 51,540,327 |      |  | $    | 42,902,630 |   |  | $ | 41,226,092 |  
|                     |  |      |            |      |  |      |            |   |  |   |            |  

Maturities of long-term debt at September 28, 2002 are as follows:

|            |  |   |             |  |  |  |  |  |  |  |  | 
|----------- |  | - | ----------- |  |  |  |  |  |  |  |  | 
|Fiscal Year |  |   |             | 
|            |  |   |             | 
|2003        |  | $ | 47,307,046  | 
|2004        |  |   | 37,742,338  | 
|2005        |  |   | 40,908,328  | 
|2006        |  |   | 16,364,111  | 
|2007        |  |   | 31,352,741  | 
|Thereafter  |  |   | 422,956,969 | 
|            |  |   |             | 
|Total       |  | $ | 596,631,533 | 
|            |  |   |             | 

7. Other Long-Term Liabilities

Other long-term liabilities are summarized as follows:

|                                        |  |      |           |      |  |   |           | 
|--------------------------------------- |  | ---- | --------- | ---- |  | - | --------- | 
|                                        |  | 2002 |           | 2001
|                                        |  |      |           |     
|Advance payments on purchases contracts |  | $    | 4,175667  |      |  | $ | 3,638,708 | 
|Deferred gain-sale/leasebacks           |  |      | 1,118,366 |      |  |   | 1,965,548 | 
|Other                                   |  |      | 1,084,554 |      |  |   | 1,834,977 | 
|                                        |  |      |           |      |  |   |           | 
|Total other long-term liabilities       |  |      | 6,378,587 |      |  |   | 7,439,233 | 
|Less current portion                    |  |      | 3,215,425 |      |  |   | 3,494,273 | 
|                                        |  |      |           |      |  |   |           | 
|                                        |  | $    | 3,163,162 |      |  | $ | 3,944,960 | 
|                                        |  |      |           |      |  |   |           | 

Advance Payments on Purchases Contracts The Company has entered into
agreements with suppliers whereby payment is received in advance for
commitments to purchase product from these suppliers in the future. The
unearned portion, included in other long-term liabilities, will be recognized
in accordance with the terms of the contract.

34



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##### 



Ingles Markets, Incorporated and SubsidiariesNotes To Consolidated Financial Statements
Fiscal years ended September 28, 2002, September 29, 2001
     and September 30, 2000

8. Stockholders Equity

The Company has two classes of Common Stock: Class A and Class B. Class A
Common Stock is traded on The Nasdaq Stock Markets National Market under the
symbol IMKTA. There is no public market for the Companys Class B Common
Stock. However, each share of Class B Common Stock is convertible at any time,
at the option of the holder, into one share
of Class A Common Stock. Upon any transfers of Class B Common Stock (other
than to immediate family members and the Investment/Profit Sharing Plan), such
stock is automatically converted into Class A Common Stock.

The holders of the Class A Common Stock and Class B Common Stock are entitled
to dividends and other distributions as and when declared out of assets legally
available therefore, subject to the dividend rights of any preferred stock that
may be issued in the future. Each share of Class A Common Stock is entitled to
receive a cash dividend and liquidation payment in an amount equal to 110% of
any cash dividend or liquidation payment on Class B Common Stock. Any stock
dividend must be paid in shares of Class A Common Stock with respect to Class A
Common Stock and in shares of Class B Common Stock with respect to Class B
Common Stock.

The voting powers, preferences and relative rights of Class A Common Stock and
Class B Common Stock are identical in all respects, except that the holders of
Class A Common Stock have one vote per share and the holders of Class B Common
Stock have ten votes per share. In addition, holders of Class A Common Stock,
as a separate class, are entitled to elect 25% of all directors constituting
the Board of Directors (rounded to the nearest whole number). As long as the
Class B Common Stock represents at least 12.5% of the total outstanding Common
Stock of both classes, holders of Class B Common Stock, as a separate class,
are entitled to elect the remaining directors. The Companys Articles of
Incorporation and Bylaws provide that the Board of Directors can set the number
of directors between five and eleven.

9. Earnings Per Common Share

The following table sets forth the computation of basic and diluted earnings
per share:

|         |  |                                                                             |  |      |            |      |  |      |            |  |  |   |            | 
|-------- |  | --------------------------------------------------------------------------- |  | ---- | ---------- | ---- |  | ---- | ---------- |  |  | - | ---------- | 
|         |  |                                                                             |  | 2002 |            | 2001 |  | 2000
|         |  |                                                                             |  |      |            |      |  |     
|BASIC:   |  |                                                                             |  |      |            |      |  |      |            |  |  |  
|         |  | Income before extraordinary item                                            |  | $    | 15,294,559 |      |  | $    | 17,850,021 |  |  | $ | 21,091,286 | 
|         |  | Extraordinary item-early extinguishment of debt
(net of income tax benefit) |  |      | (561,660   | )    |  |      |           |  |  |   |           | 
|         |  |                                                                             |  |      |            |      |  |      |            |  |  |  
|         |  | Net income                                                                  |  | $    | 14,732,899 |      |  | $    | 17,850,021 |  |  | $ | 21,091,286 | 
|         |  |                                                                             |  |      |            |      |  |      |            |  |  |  
|         |  | Weighted average number of common shares
outstanding                        |  |      | 22,726,030 |      |  |      | 22,592,626 |  |  |   | 22,558,325 | 
|         |  |                                                                             |  |      |            |      |  |      |            |  |  |  
|         |  | Basic earnings per common share before
extraordinary item                   |  | $    | .67        |      |  | $    | .79        |  |  | $ | .93        | 
|         |  | Extraordinary item-early extinguishment of debt                             |  |      | (.02       | )    |  |      |           |  |  |   |           | 
|         |  |                                                                             |  |      |            |      |  |      |            |  |  |  
|         |  | Basic earnings per common share                                             |  | $    | .65        |      |  | $    | .79        |  |  | $ | .93        | 
|         |  |                                                                             |  |      |            |      |  |      |            |  |  |  
|DILUTED: |  |                                                                             |  |      |            |      |  |      |            |  |  |  
|         |  | Income before extraordinary item                                            |  | $    | 15,294,559 |      |  | $    | 17,850,021 |  |  | $ | 21,091,286 | 
|         |  | Extraordinary item-early extinguishment of debt
(net of income tax benefit) |  |      | (561,660   | )    |  |      |           |  |  |   |           | 
|         |  |                                                                             |  |      |            |      |  |      |            |  |  |  
|         |  | Diluted earnings                                                            |  | $    | 14,732,899 |      |  | $    | 17,850,021 |  |  | $ | 21,091,286 | 
|         |  |                                                                             |  |      |            |      |  |      |            |  |  |  
|         |  | Weighted average number of common shares
outstanding                        |  |      | 23,133,825 |      |  |      | 22,738,880 |  |  |   | 22,666,174 | 
|         |  |                                                                             |  |      |            |      |  |      |            |  |  |  
|         |  | Diluted earnings per common share before
extraordinary item                 |  | $    | .66        |      |  | $    | .79        |  |  | $ | .93        | 
|         |  | Extraordinary item-early extinguishment of debt                             |  |      | (.02       | )    |  |      |           |  |  |   |           | 
|         |  |                                                                             |  |      |            |      |  |      |            |  |  |  
|         |  | Diluted earnings per common share                                           |  | $    | .64        |      |  | $    | .79        |  |  | $ | .93        | 
|         |  |                                                                             |  |      |            |      |  |      |            |  |  |  

35



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##### 



Ingles Markets, Incorporated and SubsidiariesNotes To Consolidated Financial Statements
Fiscal years ended September 28, 2002, September 29, 2001
     and September 30, 2000

The difference in the weighted average number of common shares outstanding
for the basic and diluted computations relates to outstanding stock options
calculated using the treasury method for the diluted computation.

Options to purchase 1,070,000, 855,000 and 1,414,000 shares of common stock
at prices ranging from $12.25 to $14.00 per share were outstanding during
fiscal 2002, 2001 and 2000, respectively, but were not included in the
computation of diluted earnings per share because the options exercise
prices were greater than the average market price of the common shares and,
therefore, the effect would be antidilutive.

10. Employee Benefit Plans

Investment/Profit Sharing Plan The purpose of the qualified
investment/profit sharing plan is to provide retirement benefits to eligible
employees. Assets of the plan, including the Companys Class B Common
Stock, are held in trust for employees and distributed upon retirement,
death, disability or other termination of employment. Company contributions
are discretionary and are determined quarterly by the Board of Directors.
The Plan includes a 401(k) feature. Company contributions to the plan,
included in operating and administrative expenses, were $784,000, $832,000
and $714,000 for fiscal years 2002, 2001 and 2000, respectively.

Cash Bonus Plan The Company pays monthly bonuses to various managerial
personnel based on performance of the operating units managed by these
personnel. Except for certain employees who receive monthly bonuses, annual
bonuses based on pre-tax, pre-bonus income are paid to all employees who
worked the entire fiscal year. The Company has a discretionary bonus plan
for certain executive officers providing for bonuses upon attainment of
certain operating goals. Operating and administrative expenses include
bonuses of approximately $5.0 million, $5.1 million and $5.8 million for
fiscal years 2002, 2001 and 2000, respectively.

1987 Employee Incentive Stock Option Plan The Company has an incentive
stock option plan under which an aggregate of 250,000 shares of the
Companys Class A Common Stock were issuable to qualified employees until
September 8, 1997. The options may be exercised within a period of three
months after five years from the date of issue or upon death, disability or
retirement. As of September 28, 2002, no options were outstanding under
this plan. Information with respect to options granted, exercised, canceled
and outstanding follows:

|                                |          |  |        |         |              |  |                 |                 |         |   |          |       | 
|------------------------------- | -------- |  | ------ | ------- | ------------ |  | --------------- | --------------- | ------- | - | -------- | ----- | 
|                                |          |  |        |         |              |  |                 |                 |         |   | Weighted
|                                |          |  | Shares |         |              |  |                 |                 | Average
|                                |          |  | Under  |         | Option Price |  | Exercise       
|                                |          |  | Option |         | Per Share    |  | Price          
|                                |          |  |        |         |              |  |                
|Outstanding,
September 25, 1999 |          |  | 76,000 |         |              |  | $10.00 - $14.00 |                 |         | $ | 12.36    |      
|                                | Canceled |  |        | (22,000 | )            |  |                 | 10.00 -   14.00 |         |   |          | 11.78 | 
|                                |          |  |        |         |              |  |                 |                 |         |   |          |      
|Outstanding,
September 30, 2000 |          |  | 54,000 |         |              |  | 10.00 -   14.00 |                 |         |   | 12.59    |      
|                                | Canceled |  |        | (24,000 | )            |  |                 | 10.00 -   14.00 |         |   |          | 10.83 | 
|                                |          |  |        |         |              |  |                 |                 |         |   |          |      
|Outstanding,
September 29, 2001 |          |  | 30,000 |         |              |  | 14.00           |                 |         |   | 14.00    |      
|                                | Canceled |  |        | (30,000 | )            |  |                 | 14.00           |         |   |          | 14.00 | 
|                                |          |  |        |         |              |  |                 |                 |         |   |          |      
|Outstanding,
September 28, 2002 |          |  | -      |         |              |  |                 |                 |         |   |          |      
|                                |          |  |        |         |              |  |                 |                 |         |   |          |      

1997 Nonqualified Stock Option Plan The Company has a nonqualified stock
option plan under which an aggregate of 8,000,000 shares of the Companys
Class A Common Stock may be issued to officers and other key employees until
January 1, 2007.

Options currently outstanding under the plan may be exercised within a
one-year period following the grant exercise date or after death, disability
or retirement. All options automatically terminate with termination of the
optionees employment
36

Ingles Markets, Incorporated and SubsidiariesNotes To Consolidated Financial Statements
Fiscal years ended September 28, 2002, September 29, 2001
     and September 30, 2000

for any other reason. The grant exercise date may vary from one year to five
years from the date the options were granted. As of September 28, 2002,
there were 699,000 options exercisable under this plan.

Information with respect to options granted, canceled and outstanding
follows:

|                                |           |  |           |           |              |  |                 |              |         |   |          |       | 
|------------------------------- | --------- |  | --------- | --------- | ------------ |  | --------------- | ------------ | ------- | - | -------- | ----- | 
|                                |           |  |           |           |              |  |                 |              |         |   | Weighted
|                                |           |  | Shares    |           |              |  |                 |              | Average
|                                |           |  | Under     |           | Option Price |  | Exercise       
|                                |           |  | Option    |           | Per Share    |  | Price          
|                                |           |  |           |           |              |  |                
|Outstanding,
September 25, 1999 |           |  | 1,901,000 |           |              |  | $10.50 - $14.00 |              |         | $ | 12.51    |      
|                                | Granted   |  |           | 2,054,700 |              |  |                 | 9.56         |         |   |          | 9.56  | 
|                                | Exercised |  |           | (100,000  | )            |  |                 | 10.50        |         |   |          | 10.50 | 
|                                | Canceled  |  |           | (29,100   | )            |  |                 | 9.56 - 14.00 |         |   |          | 12.22 | 
|                                |           |  |           |           |              |  |                 |              |         |   |          |      
|Outstanding,
September 30, 2000 |           |  | 3,826,600 |           |              |  | 9.56 - 14.00    |              |         |   | 10.98    |      
|                                | Granted   |  |           | 16,000    |              |  |                 | 11.00        |         |   |          | 11.00 | 
|                                | Exercised |  |           | (61,800   | )            |  |                 | 9.56         |         |   |          | 9.56  | 
|                                | Canceled  |  |           | (160,250  | )            |  |                 | 9.56 - 14.00 |         |   |          | 12.87 | 
|                                |           |  |           |           |              |  |                 |              |         |   |          |      
|Outstanding,
September 29, 2001 |           |  | 3,620,550 |           |              |  | 9.56 - 14.00    |              |         |   | 10.92    |      
|                                | Granted   |  |           | 34,000    |              |  |                 | 12.00        |         |   |          | 12.00 | 
|                                | Exercised |  |           | (148,200  | )            |  |                 | 9.56         |         |   |          | 9.56  | 
|                                | Canceled  |  |           | (232,550  | )            |  |                 | 9.56 - 14.00 |         |   |          | 11.37 | 
|                                |           |  |           |           |              |  |                 |              |         |   |          |      
|Outstanding,
September 28, 2002 |           |  | 3,273,800 |           |              |  | $9.56  - $14.00 |              |         | $ | 12.58    |      
|                                |           |  |           |           |              |  |                 |              |         |   |          |      

The weighted average remaining contractual life of the options outstanding
at September 28, 2002 is 0.9 years.

Accounting for Stock-Based Compensation In 1997, the Company adopted the
provisions of Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation (FAS 123). FAS 123 establishes
financial accounting and reporting standards for stock-based compensation
plans. As permitted by FAS 123, the Company elected to account for
stock-based compensation awards in accordance with Accounting Principles
Board Opinion No. 25. In accordance with FAS 123, the fair value of each
option grant was determined by using the Black-Scholes option-pricing model
with the following weighted average assumptions used for 2002, 2001 and
2000, respectively; risk-free interest rates of 3.00, 4.25, and 6.10
percent; dividend yield of 5.3, 5.3 and 4.8 percent; expected volatility of
25.7, 30.0 and 28.8 percent; and expected lives of 5, 5 and 3 years.

37



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##### 



Ingles Markets, Incorporated and SubsidiariesNotes To Consolidated Financial Statements
Fiscal years ended September 28, 2002, September 29, 2001
     and September 30, 2000

Had compensation cost for the Companys plans been determined based on the
fair value at the grant date for such awards in 2002, 2001 and 2000
consistent with the provisions of FAS 123, the Companys earnings and
earnings per share, basic and diluted, would have been reduced to the pro
forma amounts indicated below:

|                                               |                                              |   |      |            |      |   |      |            |  |   |      |            | 
|---------------------------------------------- | -------------------------------------------- | - | ---- | ---------- | ---- | - | ---- | ---------- |  | - | ---- | ---------- | 
|                                               |                                              |   | 2002 |            | 2001 |   | 2000
|                                               |                                              |   |      |            |      |   |     
|BASIC                                          |                                              |   |      |            |      |   |      |            |  |   |      |           
|                                               | Net income                                   |   | $    | 14,732,899 |      |   | $    | 17,850,021 |  |   | $    | 21,091,286 | 
|                                               | Net income, pro forma                        |   |      | 13,772,457 |      |   |      | 16,888,893 |  |   |      | 20,256,487 | 
|                                               | Basic earnings per common share              |   | $    | 0.65       |      |   | $    | 0.79       |  |   | $    | 0.93       | 
|                                               | Basic earnings per common share, pro forma   |   | $    | 0.61       |      |   | $    | 0.75       |  |   | $    | 0.90       | 
|DILUTED                                        |                                              |   |      |            |      |   |      |            |  |   |      |           
|                                               | Diluted earnings                             |   | $    | 14,732,899 |      |   | $    | 17,850,021 |  |   | $    | 21,091,286 | 
|                                               | Diluted earnings, pro forma                  |   |      | 13,772,457 |      |   |      | 16,888,893 |  |   |      | 20,256,487 | 
|                                               | Diluted earnings per common share            |   | $    | 0.64       |      |   | $    | 0.79       |  |   | $    | 0.93       | 
|                                               | Diluted earnings per common share, pro forma |   | $    | 0.60       |      |   | $    | 0.74       |  |   | $    | 0.89       | 
|Weighted average fair value of options granted |                                              | $ | 1.54 |            |      | $ | 1.63 |            |  | $ | 1.79 |           

The pro forma impact of these options is not likely to be representative of
the effects on reported net income for future years.

Medical Care Plan Medical and dental benefits are provided to qualified
employees under a self-insured plan. Expenses under the plan include claims
paid, administrative expenses and an estimated liability for claims incurred
but not yet paid.

38



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##### 



Ingles Markets, Incorporated and SubsidiariesNotes To Consolidated Financial Statements
Fiscal years ended September 28, 2002, September 29, 2001
     and September 30, 2000

11. Lines of Business

The Company operates three lines of business: retail grocery sales, shopping
center rentals and a fluid dairy processing plant. All of the Companys
operations are domestic. Information about the Companys operations by
lines of business (in thousands) is as follows:

|                                           |                         |   |           |           |      |   |           |           |  |   |           |           | 
|------------------------------------------ | ----------------------- | - | --------- | --------- | ---- | - | --------- | --------- |  | - | --------- | --------- | 
|                                           |                         |   | 2002      |           | 2001 |   | 2000     
|                                           |                         |   |           |           |      |   |          
|Revenues from unaffiliated customers:      |                         |   |           |           |      |   |           |           |  |   |           |          
|                                           | Grocery sales           |   | $         | 1,867,866 |      |   | $         | 1,866,124 |  |   | $         | 1,842,105 | 
|                                           | Shopping center rentals |   |           | 16,927    |      |   |           | 16,537    |  |   |           | 15,887    | 
|                                           | Fluid dairy             |   |           | 92,596    |      |   |           | 87,316    |  |   |           | 74,095    | 
|                                           |                         |   |           |           |      |   |           |           |  |   |           |          
|Total revenues from unaffiliated customers |                         | $ | 1,977,389 |           |      | $ | 1,969,977 |           |  | $ | 1,932,087 |          
|                                           |                         |   |           |           |      |   |           |           |  |   |           |          
|Income from operations:                    |                         |   |           |           |      |   |           |           |  |   |           |          
|                                           | Grocery sales           |   | $         | 48,560    |      |   | $         | 48,310    |  |   | $         | 51,089    | 
|                                           | Shopping center rentals |   |           | 10,355    |      |   |           | 10,302    |  |   |           | 10,149    | 
|                                           | Fluid dairy             |   |           | 11,566    |      |   |           | 8,600     |  |   |           | 7,194     | 
|                                           |                         |   |           |           |      |   |           |           |  |   |           |          
|Total income from operations               |                         | $ | 70,481    |           |      | $ | 67,212    |           |  | $ | 68,432    |          
|                                           |                         |   |           |           |      |   |           |           |  |   |           |          
|Assets:                                    |                         |   |           |           |      |   |           |           |  |   |           |          
|                                           | Grocery sales           |   | $         | 860,583   |      |   | $         | 805,627   |  |   | $         | 777,431   | 
|                                           | Shopping center rentals |   |           | 124,965   |      |   |           | 128,363   |  |   |           | 123,672   | 
|                                           | Fluid dairy             |   |           | 28,843    |      |   |           | 28,811    |  |   |           | 26,663    | 
|                                           |                         |   |           |           |      |   |           |           |  |   |           |          
|Total assets                               |                         | $ | 1,014,391 |           |      | $ | 962,801   |           |  | $ | 927,766   |          
|                                           |                         |   |           |           |      |   |           |           |  |   |           |          
|Capital expenditures:                      |                         |   |           |           |      |   |           |           |  |   |           |          
|                                           | Grocery sales           |   | $         | 46,569    |      |   | $         | 65,836    |  |   | $         | 92,761    | 
|                                           | Shopping center rentals |   |           | 695       |      |   |           | 4,461     |  |   |           | 6,756     | 
|                                           | Fluid dairy             |   |           | 2,449     |      |   |           | 2,897     |  |   |           | 3,018     | 
|                                           |                         |   |           |           |      |   |           |           |  |   |           |          
|Total capital expenditures                 |                         | $ | 49,713    |           |      | $ | 73,194    |           |  | $ | 102,535   |          
|                                           |                         |   |           |           |      |   |           |           |  |   |           |          
|Depreciation and amortization:             |                         |   |           |           |      |   |           |           |  |   |           |          
|                                           | Grocery sales           |   | $         | 40,898    |      |   | $         | 38,320    |  |   | $         | 37,319    | 
|                                           | Shopping center rentals |   |           | 5,027     |      |   |           | 4,687     |  |   |           | 4,117     | 
|                                           | Fluid dairy             |   |           | 2,387     |      |   |           | 2,259     |  |   |           | 2,096     | 
|                                           |                         |   |           |           |      |   |           |           |  |   |           |          
|Total depreciation and amortization        |                         | $ | 48,312    |           |      | $ | 45,266    |           |  | $ | 43,532    |          
|                                           |                         |   |           |           |      |   |           |           |  |   |           |          

Revenue from shopping center rentals is included in rental income, net in
the statements of income. The other revenues comprise the net sales
reported in the statements of income.

The fluid dairy segment had $44.2, $44.6 and $44.8 million in sales to the
grocery sales segment in fiscal 2002, 2001 and 2000, respectively. These
sales have been eliminated in consolidation.

39



---



##### 



Ingles Markets, Incorporated and SubsidiariesNotes To Consolidated Financial Statements
Fiscal years ended September 28, 2002, September 29, 2001
     and September 30, 2000

12. Selected Quarterly Financial Data (Unaudited)

The following is a summary of unaudited financial data regarding the
Companys quarterly results of operations. Each of the quarters in the two
fiscal years presented contains thirteen weeks.

|                                  |  |                                                 |         |         |  |         |         |         |  |       |         |  |  |   |         |  |  |   |           | 
|--------------------------------- |  | ----------------------------------------------- | ------- | ------- |  | ------- | ------- | ------- |  | ----- | ------- |  |  | - | ------- |  |  | - | --------- | 
|                                  |  | (in thousands except earnings per common share)
|                                  |  | 1st                                             |         | 2nd     |  | 3rd     |         | 4th     |  |       |         | 
|2002                              |  | Quarter                                         |         | Quarter |  | Quarter |         | Quarter |  | Total
|                                  |  |                                                 |         |         |  |         |         |         |  |      
|Net sales                         |  | $                                               | 499,444 |         |  | $       | 493,156 |         |  | $     | 482,952 |  |  | $ | 484,910 |  |  | $ | 1,960,462 | 
|Gross profit                      |  |                                                 | 128,035 |         |  |         | 132,476 |         |  |       | 129,172 |  |  |   | 131,042 |  |  |   | 520,725   | 
|Income before extraordinary
item  |  |                                                 | 4,566   |         |  |         | 3,296   |         |  |       | 3,692   |  |  |   | 3,741   |  |  |   | 15,295    | 
|Net income                        |  |                                                 | 4,117   |         |  |         | 3,296   |         |  |       | 3,568   |  |  |   | 3,752   |  |  |   | 14,733    | 
|Basic earnings per
common share   |  |                                                 | .18     |         |  |         | .15     |         |  |       | .16     |  |  |   | .16     |  |  |   | .65       | 
|Diluted earnings per
common share |  |                                                 | .18     |         |  |         | .14     |         |  |       | .16     |  |  |   | .16     |  |  |   | .64       | 

|                                  |  |   |         |  |  |   |         |  |  |   |         |  |  |   |         |  |  |   |           | 
|--------------------------------- |  | - | ------- |  |  | - | ------- |  |  | - | ------- |  |  | - | ------- |  |  | - | --------- | 
|2001                              |  |   |         |  |  |   |         |  |  |   |         |  |  |   |         |  |  |   |           | 
|                                  |  |   |         |  |  |   |         |  |  |   |         |  |  |   |         |  |  |   |           | 
|Net sales                         |  | $ | 504,695 |  |  | $ | 475,167 |  |  | $ | 484,735 |  |  | $ | 488,843 |  |  | $ | 1,953,440 | 
|Gross profit                      |  |   | 128,564 |  |  |   | 125,359 |  |  |   | 128,634 |  |  |   | 128,999 |  |  |   | 511,556   | 
|Net income                        |  |   | 4,458   |  |  |   | 3,150   |  |  |   | 5,922   |  |  |   | 4,320   |  |  |   | 17,850    | 
|Basic earnings per
common share   |  |   | .20     |  |  |   | .14     |  |  |   | .26     |  |  |   | .19     |  |  |   | .79       | 
|Diluted earnings per
common share |  |   | .20     |  |  |   | .14     |  |  |   | .26     |  |  |   | .19     |  |  |   | .79       | 

13. Litigation

Various legal proceedings and claims arising in the ordinary course of business
are pending against the Company. In the opinion of management, the ultimate
liability, if any, from all pending legal proceedings and claims would not
materially affect the Companys financial position or the results of its
operations.

14. Fair Values of Financial Instruments

The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments:

Cash and cash equivalents: The carrying amounts reported in the balance sheets
for cash and cash equivalents approximate their fair values.

Receivables: The carrying amounts reported in the balance sheets for
receivables approximate their fair values.

Long and short-term debt: The carrying amounts of the Companys short-term
borrowings approximate their fair values. The fair values of the Companys
long-term debt are based on quoted market prices, where available, or
discounted cash flow analyses, based on the Companys current incremental
borrowing rates for similar types of borrowing arrangements.

40



---



##### 



Ingles Markets, Incorporated and SubsidiariesNotes To Consolidated Financial Statements
Fiscal years ended September 28, 2002, September 29, 2001
     and September 30, 2000

The carrying amounts and fair values of the Companys financial instruments at
September 28, 2002 and September 29, 2001 are as follows (amounts in
thousands):

|                               |                           |   |          |         |       |   |          |         |       |   |        |         |  |   |        |         | 
|------------------------------ | ------------------------- | - | -------- | ------- | ----- | - | -------- | ------- | ----- | - | ------ | ------- |  | - | ------ | ------- | 
|                               |                           |   | 2002     |         | 2001 
|                               |                           |   |          |         |      
|                               |                           |   | Carrying |         | Fair  |   | Carrying |         | Fair 
|                               |                           |   | Amount   |         | Value |   | Amount   |         | Value
|                               |                           |   |          |         |       |   |          |         |      
|Cash and cash equivalents      |                           | $ | 46,900   |         |       | $ | 46,900   |         |       | $ | 12,435 |         |  | $ | 12,435 |        
|Receivables                    |                           |   | 34,823   |         |       |   | 34,823   |         |       |   | 32,466 |         |  |   | 32,466 |        
|Long-term and short-term debt: |                           |   |          |         |       |   |          |         |       |   |        |         |  |   |        |        
|                               | Real estate and equipment |   |          | 348,747 |       |   |          | 356,543 |       |   |        | 488,521 |  |   |        | 495,868 | 
|                               | Other                     |   |          | 247,885 |       |   |          | 225,407 |       |   |        | 61,024  |  |   |        | 61,024  | 

15. Cash Flow Information

Supplemental disclosure of cash flow information is as follows:

|                               |                                                               |  |      |            |      |  |      |            |  |  |   |            | 
|------------------------------ | ------------------------------------------------------------- |  | ---- | ---------- | ---- |  | ---- | ---------- |  |  | - | ---------- | 
|                               |                                                               |  | 2002 |            | 2001 |  | 2000
|                               |                                                               |  |      |            |      |  |     
|Cash paid during the year for: |                                                               |  |      |            |      |  |      |            |  |  |   |           
|                               | Interest (net of amounts capitalized)                         |  | $    | 44,303,243 |      |  | $    | 43,485,020 |  |  | $ | 40,898,804 | 
|                               | Income taxes                                                  |  |      | 10,262,495 |      |  |      | 623,867    |  |  |   | 8,966,329  | 
|Non cash items:                |                                                               |  |      |            |      |  |      |            |  |  |   |           
|                               | Property and equipment additions
included in accounts payable |  |      | 4,066,787  |      |  |      | 2,366,442  |  |  |   | 5,746,770  | 

16. Major Supplier

A large portion of inventory is purchased from a wholesale grocery
distributor. Purchases from the distributor were approximately $197 million
in 2002, $203 million in 2001 and $188 million in 2000. This distributor
owns approximately 3% of the Companys Class A Common Stock and
approximately 1% of the Companys Class B Common Stock at September 28,
2002. Amounts owed to this distributor, included in accounts payable-trade
and accrued expenses, were $4.1 million and $3.8 million at September 28,
2002 and September 29, 2001, respectively.

In addition, the Company sells dairy and juice products to this wholesale
grocery distributor. Sales to this distributor were $35.4 million in fiscal
2002, $32.5 million in fiscal 2001 and $29.6 million in fiscal 2000.
Amounts due from this distributor, included in receivables, were $1.5
million and $1.3 at September 28, 2002 and September 29, 2001, respectively.

41



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##### 



|                                              |  |            
|--------------------------------------------- |  | -----------
|INGLES MARKETS, INCORPORATED AND SUBSIDIARIES |  | SCHEDULE II

SUPPLEMENTAL SCHEDULE OF VALUATION AND QUALIFYING ACCOUNTS

|                                      |  |              |         |                  |  |            |         |      |  |        |        |            |  |   |         | 
|------------------------------------- |  | ------------ | ------- | ---------------- |  | ---------- | ------- | ---- |  | ------ | ------ | ---------- |  | - | ------- | 
|                                      |  | BALANCE AT   |         |                  |  |            |         |      |  |        |        | BALANCE AT
|                                      |  | BEGINNING OF |         | CHARGED TO       |  |            |         |      |  | END OF
|DESCRIPTION                           |  | YEAR         |         | COSTS & EXPENSES |  | DEDUCTIONS |         | YEAR
|                                      |  |              |         |                  |  |            |         |     
|Fiscal year ended September 28, 2002: |  |              |         |                  |  |            |         |      |  |        |        |            |  |   |         | 
|Deducted from asset accounts:         |  |              |         |                  |  |            |         |      |  |        |        |            |  |   |         | 
|Allowance for doubtful accounts       |  | $            | 339,938 |                  |  | $          | 216,000 |      |  | $      | 76,825 | (1)        |  | $ | 479,113 | 
|                                      |  |              |         |                  |  |            |         |      |  |        |        |            |  |   |         | 
|Fiscal year ended September 29, 2001: |  |              |         |                  |  |            |         |      |  |        |        |            |  |   |         | 
|Deducted from asset accounts:         |  |              |         |                  |  |            |         |      |  |        |        |            |  |   |         | 
|Allowance for doubtful accounts       |  | $            | 256,630 |                  |  | $          | 176,000 |      |  | $      | 92,692 | (1)        |  | $ | 339,938 | 
|                                      |  |              |         |                  |  |            |         |      |  |        |        |            |  |   |         | 
|Fiscal year ended September 30, 2000: |  |              |         |                  |  |            |         |      |  |        |        |            |  |   |         | 
|Deducted from asset accounts:         |  |              |         |                  |  |            |         |      |  |        |        |            |  |   |         | 
|Allowance for doubtful accounts       |  | $            | 185,070 |                  |  | $          | 146,000 |      |  | $      | 74,440 | (1)        |  | $ | 256,630 | 



|(1) |  | Uncollectible accounts written off, net of recoveries.
|--- |  | ------------------------------------------------------

42



---



##### 



SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.

| |  |                              |  |                                                                  
| |  | ---------------------------- |  | -----------------------------------------------------------------
| |  | INGLES MARKETS, INCORPORATED
|
| |  | By:                          |  | /s/ Robert P. Ingle                                              
| |  |                              |  |                                                                  
| |  |                              |  | Robert P. Ingle
Chairman of the Board and Chief Executive Officer
| |  |                              |  |                                                                  
| |  |                              |  | Date: December 9, 2002                                           

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:

|                                                                                   |  |                 
|---------------------------------------------------------------------------------- |  | ----------------
|/s/ Robert P. Ingle                                                                |  | December 9, 2002
|                                                                                   |  |                 
|Robert P. Ingle, Chairman of the
Board, Chief Executive Officer
and Director       |  |                 
|                                                                                   |  |                 
|/s/ Vaughn C. Fisher                                                               |  | December 9, 2002
|                                                                                   |  |                 
|Vaughn C. Fisher, President, Chief
Operating Officer and Director                  |  |                 
|                                                                                   |  |                 
|/s/ Brenda S. Tudor                                                                |  | December 9, 2002
|                                                                                   |  |                 
|Brenda S. Tudor, CPA, Vice
President-Finance, Chief Financial
Officer and Director |  |                 
|                                                                                   |  |                 
|/s/ Charles E. Russell                                                             |  | December 9, 2002
|                                                                                   |  |                 
|Charles E. Russell, Director                                                       |  |                 
|                                                                                   |  |                 
|/s/ Robert P. Ingle, II                                                            |  | December 9, 2002
|                                                                                   |  |                 
|Robert P. Ingle, II, Vice President-
Operations and Director                       |  |                 
|                                                                                   |  |                 
|/s/ Florence S. Dimenna                                                            |  | December 9, 2002
|                                                                                   |  |                 
|Florence S. Dimenna, Secretary and Controller                                      |  |                 

43



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##### 



CERTIFICATION PURSUANT TO 17 CFR 240.13a-14
PROMULGATED UNDER SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Robert P. Ingle, Chief Executive Officer of Ingles Markets,
Incorporated, certify that:



|1. |  | I have reviewed this annual report on Form 10-K of Ingles Markets,
Incorporated;                                                                                                                                                                                                                                        
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual
report;                   
|  
|4. |  | The registrants other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:                                                                                                

(a)  designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this annual report is being prepared;

(b)  evaluated the effectiveness of the registrants disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
annual report (the Evaluation Date); and

(c)  presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;



|5. |  | The registrants other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors:
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

(a)  all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to record,
process, summarize and report financial data and have identified for the
registrants auditors any material weaknesses in internal controls; and

(b)  any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal controls;
and



|6. |  | The registrants other certifying officer and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                        |  | 
|--------------------------------------- |  | 
|Date: December 9, 2002                  |  | 
|                                       
|/s/ Robert P. Ingle                     |  | 
|                                        |  | 
|Robert P. Ingle
Chief Executive Officer |  | 

44



---



##### 



CERTIFICATION PURSUANT TO 17 CFR 240.13a-14
PROMULGATED UNDER SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Brenda S. Tudor, Chief Financial Officer of Ingles Markets, Incorporated,
certify that:



|1. |  | I have reviewed this annual report on Form 10-K of Ingles Markets,
Incorporated;                                                                                                                                                                                                                                        
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual
report;                   
|  
|4. |  | The registrants other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:                                                                                                

(a)  designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this annual report is being prepared;

(b)  evaluated the effectiveness of the registrants disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
annual report (the Evaluation Date); and

(c)  presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;



|5. |  | The registrants other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors:
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

(a)  all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to record,
process, summarize and report financial data and have identified for the
registrants auditors any material weaknesses in internal controls; and

(b)  any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal controls;
and



|6. |  | The registrants other certifying officer and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                        |  | 
|--------------------------------------- |  | 
|Date: December 9, 2002                  |  | 
|                                       
|/s/ Brenda S. Tudor                     |  | 
|                                        |  | 
|Brenda S. Tudor
Chief Financial Officer |  | 

45



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##### 



EXHIBIT INDEX

|     |  |                                                                                                                                                                                                                                                                                                                                                                                       
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1  |  | Articles of Incorporation of Ingles Markets, Incorporated, as amended.
(Included as Exhibit 3.1 to Registrants S-1 Registration Statement,
File No. 33-23919, previously filed with the Commission and incorporated
herein by this reference.)                                                                                                                                       
|     |  |                                                                                                                                                                                                                                                                                                                                                                                       
|3.2  |  | By-laws of Ingles Markets, Incorporated. (Included as Exhibit 3.2 to
Registrants Annual Report on Form 10-K for the fiscal year ended
September 24, 1988, File No. 0-14706, previously filed with the
Commission and incorporated herein by this reference.)                                                                                                                         
|     |  |                                                                                                                                                                                                                                                                                                                                                                                       
|4.1  |  | See Exhibits 3.1 and 3.2 for provisions of Articles of Incorporation,
as amended and By-laws of Registrant defining rights of holders of
capital stock of Registrant.                                                                                                                                                                                                                 
|     |  |                                                                                                                                                                                                                                                                                                                                                                                       
|4.2  |  | Loan Agreement between the Registrant and Metropolitan Life Insurance
Company dated March 21, 1990. (Included as Exhibit 19 to Registrants
Quarterly Report on Form 10-Q for the quarter ended March 31, 1990, File
No. 0-14706, previously filed with the Commission and incorporated
herein by this reference.)                                                                    
|     |  |                                                                                                                                                                                                                                                                                                                                                                                       
|4.3  |  | Indenture dated December 11, 2001 between the Registrant and U.S. Bank,
N.A., as trustee, relating to the Registrants 8-7/8% Senior
Subordinated Notes due 2011. (Included as Exhibit 4.3 to Registrants
Annual Report on Form 10-K for the fiscal year ended September 29, 2001,
File No. 0-14706, previously filed with the Commission and incorporated
herein by this reference.)
|     |  |                                                                                                                                                                                                                                                                                                                                                                                       
|4.4  |  | Form of the Registrants 8-7/8% Senior Subordinated Note due 2011.
(Included as Exhibit 4.4 to Registrants Annual Report on Form 10-K for
the fiscal year ended September 29, 2001, File No. 0-14706, previously
filed with the Commission and incorporated herein by this reference.)                                                                                               
|     |  |                                                                                                                                                                                                                                                                                                                                                                                       
|10.1 |  | Amended and Restated Ingles Markets, Incorporated 1987 Employee
Incentive Stock Option Plan. (Included as Exhibit 10.1 to Registrants
Annual Report on Form 10-K for the fiscal year ended September 30, 1995,
File No. 0-14706, previously filed with the Commission and incorporated
herein by this reference.)                                                                    
|     |  |                                                                                                                                                                                                                                                                                                                                                                                       
|     |  | (Management contract or compensatory plan or arrangement required to be
filed as an exhibit to this report on Form 10-K pursuant to Item 15(c) of
Form 10-K.)                                                                                                                                                                                                                         
|     |  |                                                                                                                                                                                                                                                                                                                                                                                       
|10.2 |  | Ingles Markets, Incorporated Investment/Profit Sharing Plan and Trust
as amended through June 30, 1995, along with first, second and third
amendments thereto. (Included as Exhibit 4.3 to Registrants
Registration Statement on Form S-8 filed on March 16, 1999, File No.
333-74459, previously filed with the Commission and incorporated herein
by this reference.)              
|     |  |                                                                                                                                                                                                                                                                                                                                                                                       
|     |  | (Management contract or compensatory plan or arrangement required to be
filed as an exhibit to this report on Form 10-K pursuant to Item 15(c) of
Form 10-K.)                                                                                                                                                                                                                         
|     |  |                                                                                                                                                                                                                                                                                                                                                                                       
|10.3 |  | Fourth Amendment to the Ingles Markets, Incorporated Investment/Profit
Sharing Plan effective September 4, 1999. (Included as Exhibit 10.3
to Registrants Annual Report on form 10-K for the fiscal year ended
September 30, 2000, File No. 0-14706 previously filed with the
Commission and incorporated herein by this reference.)                                                 
|     |  |                                                                                                                                                                                                                                                                                                                                                                                       
|     |  | (Management contract or compensatory plan or arrangement required to be
filed as an exhibit to this report on Form 10-K pursuant to Item 15(c) of
Form 10-K.)                                                                                                                                                                                                                         
|     |  |                                                                                                                                                                                                                                                                                                                                                                                       
|10.4 |  | Fifth Amendment to the Ingles Markets, Incorporated Investment/Profit
Sharing Plan effective March 6, 2000. (Included as Exhibit 10.4 to
Registrants Annual Report on form 10-K for the fiscal year ended
September 30, 2000, File No. 0-14706 previously filed with the
Commission and incorporated herein by this reference.)                                                      
|     |  |                                                                                                                                                                                                                                                                                                                                                                                       
|     |  | (Management contract or compensatory plan or arrangement required to be
filed as an exhibit to this report on Form 10-K pursuant to Item 15(c) of
Form 10-K.)                                                                                                                                                                                                                         
|     |  |                                                                                                                                                                                                                                                                                                                                                                                       
|10.5 |  | Sixth Amendment to the Ingles Markets, Incorporated Investment/Profit
Sharing Plan effective August 29, 2000. (Included as Exhibit 10.5 to
Registrants Annual Report on form 10-K for the fiscal year ended
September 30, 2000, File No. 0-14706 previously filed with the
Commission and incorporated herein by this reference.)                                                    
|     |  |                                                                                                                                                                                                                                                                                                                                                                                       
|     |  | (Management contract or compensatory plan or arrangement required to be
filed as an exhibit to this report on Form 10-K pursuant to Item 15(c) of
Form 10-K.)                                                                                                                                                                                                                         

46



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##### 



|      |  |                                                                                                                                                                                                                                                                                                                                     
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.6  |  | Seventh Amendment to the Ingles Markets, Incorporated Investment/Profit
Sharing Plan effective January 1, 2001. (Included as Exhibit 10.6 to
Registrants Annual Report on Form 10-K for the fiscal year ended
September 29, 2001, File No. 0-14706 previously filed with the
Commission and incorporated herein by this reference.)
|      |  |                                                                                                                                                                                                                                                                                                                                     
|      |  | (Management contract or compensatory plan or arrangement required to be
filed as an exhibit to this report on Form 10-K pursuant to Item 15(c) of
Form 10-K)                                                                                                                                                                        
|      |  |                                                                                                                                                                                                                                                                                                                                     
|10.7  |  | Eighth Amendment to the Ingles Markets, Incorporated Investment/Profit
Sharing Plan effective May 21, 2001. (Included as Exhibit 10.7 to
Registrants Annual Report on Form 10-K for the fiscal year ended
September 29, 2001, File No. 0-14706 previously filed with the
Commission and incorporated herein by this reference.)    
|      |  |                                                                                                                                                                                                                                                                                                                                     
|      |  | (Management contract or compensatory plan or arrangement required to be
filed as an exhibit to this report on Form 10-K pursuant to Item 15(c) of
Form 10-K)                                                                                                                                                                        
|      |  |                                                                                                                                                                                                                                                                                                                                     
|10.8  |  | Ninth Amendment to the Ingles Markets, Incorporated Investment/Profit
Sharing Plan effective October 1, 2001. (Included as Exhibit 10.8 to
Registrants Annual Report on Form 10-K for the fiscal year ended
September 29, 2001, File No. 0-14706 previously filed with the
Commission and incorporated herein by this reference.)  
|      |  |                                                                                                                                                                                                                                                                                                                                     
|      |  | (Management contract or compensatory plan or arrangement required to be
filed as an exhibit to this report on Form 10-K pursuant to Item 15(c) of
Form 10-K)                                                                                                                                                                        
|      |  |                                                                                                                                                                                                                                                                                                                                     
|10.9  |  | Amended and Restated Ingles Markets, Incorporated 1991 Nonqualified
Stock Option Plan. (Included as Exhibit 10.4 to Registrants Annual
Report on Form 10-K for the fiscal year ended September 30, 1995, File
No. 0-14706, previously filed with the Commission and incorporated
herein by this reference.)                        
|      |  |                                                                                                                                                                                                                                                                                                                                     
|      |  | (Management contract or compensatory plan or arrangement required to be
filed as an exhibit to this report on Form 10-K pursuant to Item 15(c) of
Form 10-K.)                                                                                                                                                                       
|      |  |                                                                                                                                                                                                                                                                                                                                     
|10.10 |  | Amended and Restated 1997 Nonqualified Stock Option Plan. (Included as Appendix A to
Registrants Proxy Statement for the Annual Meeting of Stockholders held
on February 12, 2002, File No. 0-14706, previously filed with the
Commission and incorporated herein by this reference.)                                              
|      |  |                                                                                                                                                                                                                                                                                                                                     
|      |  | (Management contract or compensatory plan or arrangement required to be
filed as an exhibit to this report on Form 10-K pursuant to Item 15(c) of
Form 10-K.)                                                                                                                                                                       
|      |  |                                                                                                                                                                                                                                                                                                                                     
|10.11 |  | Amended and Restated Ingles Markets, Incorporated Investment/Profit Sharing Plan effective September 29, 2002.                                                                                                                                                                                                                      
|      |  |                                                                                                                                                                                                                                                                                                                                     
|      |  | (Management contract or compensatory plan or arrangement required to be
filed as an exhibit to this report on Form 10-K pursuant to Item 15(c) of
Form 10-K.)                                                                                                                                                                       
|      |  |                                                                                                                                                                                                                                                                                                                                     
|21    |  | Subsidiaries of the Registrant.                                                                                                                                                                                                                                                                                                     
|      |  |                                                                                                                                                                                                                                                                                                                                     
|23    |  | Consent of Ernst & Young LLP, Independent Auditors.                                                                                                                                                                                                                                                                                 
|      |  |                                                                                                                                                                                                                                                                                                                                     
|99.1  |  | Certification Pursuant to 18 U.S.C. Section 1350                                                                                                                                                                                                                                                                                    
|      |  |                                                                                                                                                                                                                                                                                                                                     
|99.2  |  | Certification Pursuant to 18 U.S.C. Section 1350                                                                                                                                                                                                                                                                                    

47